Liquid Network Hack Update: 85% of BTC Returned but Serious Depegging Risks Loom

Over the weekend, Bitcoin’s layer-2 privacy side chain, the Liquid Network, suffered a 4,000 BTC (roughly $320 million) exploit, which was 95% of its total reserves.

In the last few hours, the hackers, who explicitly stated “we are whitehats,” partially lived up to their self-given name. They safely returned 85% (about 3,400 BTC or roughly $269.2 million) of the drained amount.

Nonetheless, a major depegging threat remains, seeing as the network heavily relies on the 1:1 backing of Bitcoin to L-BTC.

Liquid Network vulnerability fixed, hackers return funds

Notably, the hackers extracted the stolen funds while flagging the software vulnerability that allowed them to print unbacked L-BTC tokens and redeem them for real Bitcoin. They then demanded the network’s developer, Blockstream, deploy a patch and update to fix the issue as a prerequisite to fund restoration.

Once this was done, the hackers rerouted 3,400 BTC back to the Federation’s multisig wallet. The group is now still holding onto the remaining 598.5 BTC. So far, there is no communication from them or Blockstream regarding the fate of the remaining coins.

Source: Mempool

Current network status

Following the security breach, Blockstream and the federation members disabled bridge nodes, effectively freezing the whole peg-out system.