Liquid Network Hackers Return Most of $320M Bitcoin Haul

Liquid Network just watched roughly $320 million in Bitcoin walk out of the wallet backing its network, and those behind the drain say they did it to help.

About 4,000 bitcoin was withdrawn from Liquid’s federation wallet on Sept. 6, draining nearly all of its approximately 4,200 BTC reserve and prompting operators to pause the network, Reuters reported.

The incident was not a conventional private-key theft. Liquid said the unauthorized withdrawal used its Peg-out Authorization Key (PAK) even though the key itself was not compromised, but the precise vulnerability has not yet been publicly explained.

The people behind the withdrawal identified themselves as white hat hackers and said they would return most of the funds after the vulnerability was fixed. A report from Binance says that 3,400 of the stolen crypto has since been returned, leaving 600 still out.

How the unauthorized Liquid withdrawal happened

To understand how the Bitcoin got out, it helps first to understand what Liquid and SideSwap do. 

Liquid is a federated Bitcoin sidechain where users can lock bitcoin and receive L-BTC, which is intended to be backed one-for-one by bitcoin held in the federation wallet. Converting L-BTC back into bitcoin through the network is known as a peg-out.