Liquid Replenishes Bitcoin Reserves After September Exploit, but Who Covered the Loss?

The Liquid Network has eliminated the remaining shortfall in its Bitcoin reserves after receiving a final 250 BTC transfer, restoring full collateralization for its LBTC tokens. However, the federation responsible for operating the network has not disclosed the identity of the party that supplied the funds to complete the recovery.

The announcement comes nearly two months after a software vulnerability allowed an attacker to create thousands of unbacked LBTC tokens and exchange them for real Bitcoin, leaving the network with a substantial reserve deficit.

Liquid is a Bitcoin sidechain operated by a federation of companies led by Blockstream. It provides exchanges and traders with a faster way to transfer Bitcoin compared with using the main blockchain.

The network works through a deposit-and-issuance mechanism. Users lock actual BTC with the federation and receive LBTC tokens in return. Each LBTC is designed to represent one Bitcoin and remain redeemable at a one-to-one rate.

That mechanism was compromised on September 6. A flaw in Liquid’s software allowed an attacker to generate around 4,000 LBTC without depositing the corresponding Bitcoin. Those tokens were subsequently redeemed for genuine BTC.

Blockstream reported that the network’s reserves fell from approximately 4,205 BTC to just 197 BTC as a result of the incident. The attacker, who described themselves as a white-hat hacker, returned 3,400 BTC the following day.

The recovery left approximately 600 BTC missing, creating a gap between the network’s Bitcoin holdings and the amount required to fully support its outstanding LBTC supply.

That deficit has now been resolved. The Liquid Federation announced on X on Monday that its Bitcoin reserves had been restored to the level needed to provide full one-to-one backing for every LBTC. The final 250 BTC transfer completed the replenishment process.

The federation also pointed users to Liquid’s public dashboard, where the reserve balance can be independently checked.

Despite confirming that the shortfall has been covered, the network’s operators have not explained who provided the remaining funds. The approximately 600 BTC deficit was worth more than $40 million, leaving the source of the recovery financing undisclosed.

Meanwhile, users have been able to exchange Bitcoin and LBTC at a one-to-one rate through services such as SideSwap since late October.

Direct withdrawals processed through the federation remain subject to additional safeguards. The federation refers to these restrictions as “enhanced operational controls” and has indicated that further details about governance changes will be released in the coming weeks.