Bitcoin sidechain Liquid pauses after purported ‘white hats’ withdraw $320M in BTC
Reported by Cointelegraph · AI-assisted summary by ChikoCorp AI News Desk
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Summary
The Bitcoin sidechain Liquid paused operations after actors claiming to be white-hat hackers withdrew about 4,000 BTC, valued at $320 million, from its federation wallet. Bridge nodes were disabled to prevent new transactions, and exchanges halted or prepared to halt L-BTC deposits and withdrawals. Blockstream, Liquid's technology provider, engaged with the actors through signed onchain messages, who said they would return most of the Bitcoin after a vulnerability was fixed and nodes updated; however, the funds had not yet been returned at the time of reporting.
Why it matters
This development impacts Liquid’s operational functionality, particularly its bridge transactions and L-BTC transfers, potentially affecting users and exchanges involved with the sidechain. The withdrawal of the majority of the federation wallet’s BTC also raises concerns about the sidechain’s security and federation model. The source does not explicitly state broader market or regulatory implications.
Key context
Liquid uses a federation to hold Bitcoin that backs L-BTC issued on the sidechain, with the federation wallet balance closely tied to L-BTC’s backing. The withdrawal of 95% of the wallet’s Bitcoin effectively transfers control over most of the reserved BTC to the actors until funds are returned. The withdrawal exploited a bug in Elements, the open-source software behind Liquid, rather than a compromise of a peg-out key in the SideSwap peg-out service.
Key numbers and entities
Approximately 4,000 BTC worth $320 million was withdrawn, representing about 95% of the roughly 4,200 BTC federation wallet balance. Blockstream is Liquid’s technology provider, and SideSwap was involved via its peg-out service. Samson Mow, Jan3 CEO and former Blockstream chief strategy officer, documented the communication timeline between the actors and Blockstream.
What remains unclear
The exact nature of the vulnerability exploited and the details of the patch to be deployed are not specified. It is also unclear when or if the withdrawn Bitcoin will be returned, as at the time of reporting the funds remained mostly unmoved. The broader implications for Liquid users and the sidechain ecosystem in the medium term are not detailed.