'Purported White-Hat Hackers' Withdraw $320M in Bitcoin From Liquid

In brief

• Liquid disabled its bridge nodes on Sunday after about 4,000 BTC left the federation wallet that backs L-BTC.
• The withdrawal used SideSwap's peg-out key, which Liquid says was not compromised, pointing instead to a bug in Elements.
• The wallet now holds roughly 200 BTC, around 5% of what it held before.

Blockstream's Liquid sidechain has been paused since Sunday, after about 4,000 BTC worth roughly $320 million left the federation wallet that backs every L-BTC in circulation.

SideSwap, a federation member running a peg-out service, said a customer sent it 4,000 L-BTC at 14:05 UTC. It burned them under a valid authorization, and 23 minutes later the federation paid out 3,996 BTC.

Liquid said the funds moved through SideSwap's Peg-out Authorization Key, but that neither that key nor any other federation key was compromised. SideSwap said none of its systems were breached either, and pointed to a bug in Elements, the software Liquid runs on.

Blockstream has not explained the bug, though a fix for it was added to Liquid's underlying software five weeks earlier. Nothing was forced out of the wallet: someone created L-BTC that no Bitcoin was backing, then cashed it in through a peg-out that looked ordinary.