A major security breach has struck the Liquid Network, a Bitcoin-based sidechain utilized by cryptocurrency exchanges, resulting in the loss of approximately $320 million worth of Bitcoin.
The attackers, who describe themselves as ethical hackers, managed to extract around 4,000 BTC from a total of 4,200 BTC stored in the network’s federation wallet. This massive withdrawal prompted the immediate suspension of all transactions on the Liquid sidechain.
Blockstream, the company behind Liquid Network, clarified that the incident was caused by a software vulnerability in the Elements protocol rather than compromised private keys or passwords. The stolen funds were transferred via SideSwap, an officially sanctioned trading platform within the Liquid ecosystem.
Liquid Network, which was introduced in 2018, operates under the governance of a federation comprising over 80 exchanges, infrastructure providers, and financial institutions. In an official statement, the network confirmed that its wallets would be temporarily inaccessible while developers work to address the issue and restore full functionality.
The sidechain paused new transactions and issued warnings about potential disruptions to wallet services. This event is particularly significant because Liquid was specifically designed to enhance transaction speeds for exchanges by issuing L-BTC backed by locked Bitcoin reserves. The near-total depletion of these reserves raises serious questions about the robustness of this scaling solution.
Unlike typical cryptocurrency thefts involving stolen credentials or hacked private keys, this exploit leveraged a legitimate trading mechanism. Security experts point to a flaw at the node level in Liquid’s transaction processing software as the root cause.
The breach comes on the heels of other recent incidents in the crypto space, including a $6 million theft from a lending platform associated with Crypto.com and a separate vulnerability discovered in the Coldcard hardware wallet. As of now, Liquid Network has not provided a timeline for reopening or confirmed whether the stolen Bitcoin will be recovered.
“Liquid wallets will be impacted, and we’re sorry for any inconvenience,” Liquid Network stated on X (formerly Twitter). “Federation members are actively working on resolving this so we can restore normal network activity.”
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Anvil is a shared on-chain collateral layer built on a programmable letter of credit: reserve assets as a guarantee -no loan, no interest, keep custody & yield.
