Bitcoin sidechain Liquid Network has paused operations after supposed white-hat hackers withdrew 4,000 BTC, worth around $320 million, from its federation wallet.
White-hat hackers are cybersecurity professionals who detect vulnerabilities in software, hardware, or networks and warn organizations about potential security risks.
Liquid Network Pauses Operations
The Bitcoin sidechain released a statement on X confirming the incident, adding that it was working with Blockstream, its technology partner, to contact the hackers in question through an on-chain signed message. However, Liquid Network has not yet identified the hackers or disclosed whether the funds would be returned.
“We are aware of a security incident on @Liquid_BTC. Purported white-hat hackers have withdrawn ~4,000 BTC (~$320 million) from the Liquid Federation wallet. The @Blockstream team is working on contacting them on-chain with a signed message.”
The hackers withdrew around 95% of Liquid’s Bitcoin reserves. The sidechain’s Bitcoin reserves stood at 4,200 BTC before the security incident.
Incident Details
The statement also explained how the Bitcoin was withdrawn. According to Liquid Network, the hackers withdrew the funds using the SideSwap PAK, or Peg-Out Authorization Key. The statement clarified that the network was not compromised, but it did not disclose the vulnerability that allowed the white-hat hackers to withdraw the BTC. Following the withdrawal, the hackers reached out to the Liquid Network in an on-chain message linked to the transaction.
“We are whitehats. Contact us on-chain.”
It also notified cryptocurrency exchanges, with deposits and withdrawals of LBTC, the sidechain’s Bitcoin-backed token, already suspended. The protocol also temporarily disabled bridge nodes to prevent new transactions from being submitted to the network.
“Exchanges have been notified and have already paused (or will pause) LBTC deposits and withdrawals. Other Liquid assets such as USDT, DePix, and RWAs are unaffected by this security incident. Bridge nodes have been temporarily disabled, so no new transactions can be submitted to the network. Effectively, the Liquid sidechain is paused until this issue is resolved.”
The Liquid Network warned that wallets may also be impacted, but said the incident did not affect other assets such as USDT, DePix, and real-world assets.
Crypto Security Back In Focus
Liquid Network is a Bitcoin sidechain facilitating faster and confidential transfers. It also enables the issuance of digital assets. BTC in Liquid is represented by the LBTC token, with the underlying asset secured by federation operators. The protocol is used by several platforms for quick settlements, primarily because the primary Bitcoin blockchain often faces network congestion.
The incident, part of a string of hacks that have hit the industry, has put crypto security back in the spotlight. A Crypto.com-linked lending platform was drained of $6 million by a hacker on August 31. The recent Coldcard exploit also shook the foundations of digital asset custody, raising serious questions about cold wallets, considered the safest way to store crypto.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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