Liquid Network Halts After $320 Million in Bitcoin Withdrawn by Self-Proclaimed White Hats

A Bitcoin sidechain used by exchanges and institutional traders suspended operations after nearly 4,000 BTC, worth roughly $320 million, was pulled from its federation reserves by unidentified actors claiming to be white-hat hackers.

The withdrawal, which occurred on September 6, drained approximately 95% of the bitcoin held in reserve by the Liquid Network, a federated sidechain developed by Blockstream. Before the incident, the network's bitcoin reserves stood at around 4,200 BTC. The funds were moved via a peg-out authorization key (PAK) associated with SideSwap, though Blockstream said there is no evidence the key itself was compromised.

An on-chain message attached to the bitcoin transaction read: "we are whitehats. contact us on chain." Blockstream has since attempted to reach the party responsible using a signed on-chain message, but as of the latest update, neither the identity of the actors nor any commitment to return the funds has been confirmed.

Liquid said in a post on X that the coins were withdrawn by "purported white-hat hackers" and that the network's bridge nodes had been temporarily deactivated to prevent new transactions from being submitted. "The Liquid sidechain is effectively paused until the issue is resolved," the network stated.