White-Hat Whale Extracts 4,000 BTC from Liquid Network

A major incident has occurred on the Liquid Network, with nearly 4,000 Bitcoin (BTC) worth approximately $319 million withdrawn from the sidechain. According to an incident update posted by Blockstream, the withdrawal was executed via SideSwap using a Peg-out Authorization Key, but Liquid insists that the key used was not compromised.

Liquid has since paused bridge operations and asked exchanges to stop both LBTC deposits and withdrawals while it investigates what went wrong. The federation wallet balance shown in Liquid's explorer dropped sharply from roughly 4,200 BTC to about 207.275 BTC, prompting renewed scrutiny of how Liquid's peg security functions when something unusual bypasses expected controls.

Crypto analyst DBCrypto argued that the behavior appears more consistent with an extraction that leaves funds 'sitting on Bitcoin' rather than being rapidly mixed, describing it as potentially closer to 'whitehat extraction than theft.' However, DBCrypto noted that the broader security implications remain serious, either the required signatures and authorization logic were effectively satisfied or the whitelist/control mechanisms designed to block such events did not hold.

Liquid has already established how the LBTC involved in the order was created, through a bug in Elements software. The incident raises questions about whether the controls around approvals and whitelisting performed as intended, or whether there is an unexpected pathway in the way approvals are generated and executed.