$320 Million Stolen from Liquid Network in Bitcoin Reserve Breach

The Liquid Network experienced a major security breach on Sunday when approximately $320 million in Bitcoin was unexpectedly withdrawn from its reserve wallet. According to Liquid Network's post on X, self-described 'white-hat hackers' removed roughly 4,000 of the 4,200 Bitcoins held in its Liquid Federation wallet, which is about 95% of the sidechain's total backing reserves.

The assets were withdrawn through SideSwap, a settlement platform authorized to handle redemptions from the network. However, the authorization keys backing the process were not compromised. Industry cybersecurity analysts and developers attributed the exploit to a vulnerability in Elements, the open-source software powering the sidechain, which allowed for the improper generation of tokens without proper key theft.

The individuals behind the withdrawal communicated with Blockstream developers via public, PGP-encrypted messages embedded in the Bitcoin blockchain, asserting they took the funds to demonstrate a critical code flaw. Blockchain data showed that 3,400 of the 4,000 withdrawn Bitcoins were returned to the federation wallet after Blockstream deployed a software patch to its bridge nodes on Monday.