$320 Million Drained from Liquid Federation Wallet in Security Incident
A security incident on Liquid's sidechain has drained nearly $320 million from its federation wallet. The actors, described as 'purported white-hat hackers', withdrew approximately 4,000 BTC through the Peg-out Authorisation Key operated by settlement platform SideSwap.
The Peg-out mechanism is designed to allow L-BTC holders to exchange their tokens for an equivalent amount of Bitcoin held in reserve. However, this process requires destroying the L-BTC first. The actors allegedly created unbacked L-BTC and then presented them for a peg-out, allowing the corresponding BTC to leave the federation reserve.
Liquid's halt has effectively paused the sidechain, preventing new transactions from being submitted. Exchanges have suspended or are preparing to suspend L-BTC deposits and withdrawals.