Liquid Says Every LBTC Is Fully Backed Again, Two Months After Drain

Every LBTC on the Liquid Network is backed one-for-one by bitcoin again, the Liquid Federation said on X late Monday, two months after self-described white-hat hackers pulled about 4,000 BTC from its reserves.

Blockstream, which builds the technology behind Liquid, repeated the news early Tuesday and said the backing can be checked by anyone running a Liquid node.

How Liquid works

Liquid is a sidechain, a separate network that runs next to Bitcoin for faster and more private transfers. Users lock BTC in a wallet controlled by the federation, a group of exchanges and crypto firms, and receive the same amount of LBTC. That only works if the locked bitcoin covers every LBTC in circulation. In September it did not.

The missing 598 BTC

On Sept. 6, the attackers withdrew about 4,000 BTC, then worth around $320 million. They returned 3,400 BTC the next day but kept about 598 BTC, per earlier reporting. Blockstream refused to pay a ransom for the rest. At today's price near $77,600, those 598 BTC are worth about $46 million.

The federation said the fix follows the return of 1:1 swaps between BTC and LBTC several weeks ago. It did not say how the shortfall was covered.

What changed

Asked on X what stops a repeat, Blockstream CEO Adam Back listed three hardened defenses: refreshed peg-out keys kept on cold hardware wallets, disabled proof-validation caches with a bug fix for nodes, and consensus rules that now "fail closed," meaning they block anything unexpected. He added that the network went through multiple outside audits and that AI-suggested code fixes deserve suspicion, ending with the old Bitcoin motto: "dont trust, verify."

In our opinion: Getting back to 100% backing is the only number that matters for a bitcoin IOU, so this is real good news for Liquid users. The open question is who covered roughly 598 BTC, and the federation should say. And Back's advice to double-check the robot's homework belongs on every developer's monitor.