The Liquid Federation announced that it has fully restored Bitcoin reserves on the Liquid Network, reestablishing 1:1 backing for its LBTC token following a high-profile incident in September when most of the network’s BTC was drained by self-described white-hat hackers.
Reserves Restored After Major Hack
In a public statement, the Liquid Federation confirmed that all LBTC tokens issued on the network are now backed one-to-one with Bitcoin reserves. Several weeks earlier, swaps between BTC and LBTC through participating providers had resumed at a 1:1 exchange rate following internal repairs.
Blockstream CEO Adam Back shared a screenshot of the network’s asset dashboard, showing that liabilities are fully covered, and the current reserve deficit stands at precisely 0.00 BTC. The Liquid Federation emphasized that users with their own Liquid nodes are able to independently verify the status of these reserves.
“The Liquid Federation is pleased to announce that the network’s bitcoin reserves have been fully restored, reestablishing 1:1 BTC backing for all LBTC,” the federation stated in its update.
Despite the transparency in reserve accounting, the federation did not detail how the remaining BTC lost in the hack was recovered, or whether external funds were used to offset the shortfall.
Details of the September Security Breach
On September 6, a group identifying itself as white-hat hackers withdrew about 4,000 BTC, valued at nearly $320 million at the time, from the Liquid federation wallet. The following day, after Blockstream reported that key network nodes had been patched, the group returned 3,400 BTC, leaving approximately 598 BTC unreturned.
The hackers communicated with Blockstream by embedding PGP-signed messages into Bitcoin transactions, providing assurances about their intentions. Industry experts, including Ledger CTO Charles Guillemet, questioned the motives, pointing out that keeping such a large portion of the funds blurred the line between ethical hacking and extortion.
| Event | Amount (BTC) | Estimated Value (Sep 2026) |
|---|---|---|
| Total withdrawn | 4,000 | $320 million |
| BTC returned | 3,400 | $269 million |
| BTC retained | 598 | Not specified |
Security Upgrades and Network Changes
Adam Back detailed key security enhancements following the incident, explaining that peg-out authorization keys have been refreshed and relocated to cold hardware wallets. The network has also disabled proof validation caches and updated node software with additional bug fixes. Consensus rules have been hardened to “fail closed” to prevent similar attacks. Multiple third-party audits have been conducted to examine the strengthened security framework.
Back also advised developers to view AI-generated security recommendations with skepticism, urging them to “treat with suspicion (don’t trust, verify) AI suggested fixes.”
He previously noted in an interview that recent months had seen a surge in AI-assisted security analysis throughout the crypto sector, with AI proving valuable both for improving code and for discovering vulnerabilities.
The Liquid Federation revealed that it is updating the network’s governance structure, introducing new oversight mechanisms and additional technical safeguards. More details on these changes are expected in the coming weeks.
Launched by Blockstream in 2018, the Liquid Network operates as a Bitcoin sidechain designed to enable faster and more confidential transfers. A federation consisting of exchanges and key industry participants manages the network and the custody process.
Mini dictionary: Liquid Federation — A consortium of crypto exchanges and other companies that collectively operate the Liquid sidechain, managing Bitcoin custody and the network’s technical governance.
