BREAKING: Liquid Network Bitcoin Redemptions Frozen for 35 Days — Attacker Still Holds 598 BTC Worth $50 Million

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Liquid Network Bitcoin redemption freeze reserves 86 percent attacker holds 598 BTC

Bitcoin traders are watching a fresh warning from the sidechain world. The Liquid Network, the federated Bitcoin sidechain built by Blockstream, has now kept its L-BTC to Bitcoin redemptions — called peg-outs — frozen for 35 days, and as of October 11 its reserves were covering only about 86% of the L-BTC in circulation.


The problem started on September 6, when a bug in Elements, the software that powers Liquid, allowed attackers to drain nearly 4,000 Bitcoin from the federation reserve, worth around $320 million at the time. About 3,400 BTC was returned a day later, but about 598.5 BTC, worth about $49.7 million, is still sitting in the attacker's wallet.


Blockstream has rejected the attacker's demand for a 10% bounty and has asked for the remaining Bitcoin to be returned at once. Liquid says an independent security audit of Elements v23.3.4 is under way, redemption keys have been moved to cold storage, and redemptions will only restart after full 1-to-1 backing is restored and security reviews are complete. No date has been given.


For holders, the wait is getting costly. Some L-BTC users are moving out through apps such as SideSwap and SideShift, and one user reported the move took weeks because of low liquidity, with spreads and fees of about 5% in total. Inside Liquid itself, normal sending and receiving restarted on September 10, but cashing out to real Bitcoin is still not possible.


For traders, the key point is that Bitcoin's main blockchain was not hacked — this is a sidechain trust problem, not a Bitcoin base-layer failure. Still, it is a reminder to be careful about wrapped and sidechain versions of Bitcoin: while Bitcoin itself trades near $84,000, L-BTC holders cannot redeem 1-to-1 until the missing roughly 600 BTC comes back or is covered.


Read also: BREAKING: Thailand Opens Door to Bitcoin and Ethereum ETFs — New Rules Start October 16


This post is news only, not financial advice. Always do your own research before buying or selling crypto.


Sources: Bitcoin.com News, Odaily, CryptoBriefing, The Defiant

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