Key Takeaways
- Liquid resumed block production after a 4,000 BTC exploit froze network transactions and pegs.
- The hacker returned 3,400 BTC but demanded a 10% bounty, threatening to keep the remaining ~600 BTC.
- Blockstream pledged to cover all L-BTC 1:1, reassuring users while working to patch system vulnerabilities.
Liquid Resumes Operations After Hacking Incident
The Liquid network sidechain, launched in 2018 by Blockstream, is slowly resuming its normal operations after facing one of the largest hacking incidents in 2026.
On social media, the Liquid team announced that the network had “entered the next phase of its controlled resumption,” reporting that block production had resumed without transactions while it monitored the network’s stability.
“Peg operations, including PAK-authorized peg-outs, remain suspended while work continues on the final recovery stage: restoring the BTC/LBTC reserve is in progress,” Liquid highlighted.
After the network suffered an exploit that allowed a white-hat hacker to withdraw 4,000 BTC from the federation wallet on Sunday, operations had been halted, leaving users holding other assets, like stablecoins, unable to take control or move them.
After the incident, Blockstream has been in constant communication with the hacker via onchain messages. The hacker has since returned 3,400 BTC and kept almost 600 BTC, but communication is still ongoing, and Blockstream has stressed that it is pursuing the recovery of the remaining funds.
Adam Back, founder and CEO of Blockstream, referred to the coverage of L-BTC, an asset that represents BTC but on the Liquid sidechain. Back clarified that the L-BTC peg with BTC will be covered, allowing users to withdraw their L-BTC and obtain the same amount of tokens on the Bitcoin network, but he did not explain how the near-600 BTC hole will be covered when resuming peg-out operations.
“Do not panic sell OTC,” Back said, revealing that the Liquid team was working on system updates to resume peg-in/out operations later, without specifying a timeframe.
On September 9, the anonymous white-hat hacker criticized Blockstream’s security budget, disclosing that the company allocated only $1.5 million to secure $5 billion in assets. “Your dereliction of duty is obvious,” he assessed, stating that failing to pay a 10% bug bounty would result in the loss of the unreturned assets.
