Liquid paused after purported white hats pulled ~$320 million from the wallet that backs L-BTC
Liquid Network said Sunday that about $320 million in bitcoin was withdrawn from the federation wallet that backs its sidechain tokens, Gnaneshwar Rajan at Reuters writes. Actors Liquid called purported white-hat hackers took around 4,000 of the roughly 4,200 bitcoin held there.
Liquid is a Bitcoin sidechain. Users hold L-BTC that is supposed to be backed one-for-one by real bitcoin sitting in a federation wallet, the pool of mainchain coins that stands behind the sidechain tokens. A peg-out turns that sidechain balance back into bitcoin on the main chain.
Liquid said the funds went out through SideSwap, a settlement platform permitted to handle withdrawals, and that the key used was not compromised. New transactions are halted. Liquid wallets will be impacted, the network said.
The Block writes that the withdrawal was about 95 percent of reported reserves. Bridge nodes, the links between Liquid and bitcoin, are disabled. Exchanges are suspending LBTC deposits and withdrawals.
An on-ledger message said the actors were white hats and asked Blockstream to contact them on the bitcoin ledger. Other issued assets such as USDT, a dollar stablecoin, were unaffected per the network. The pause still hits wallets.
Cointelegraph writes that the actors told Blockstream they would return most of the 4,000 BTC after a vulnerability in Elements, the open-source software Liquid runs on, is patched across the network. Funds had not been returned at time of writing. Roughly 3,998.5 BTC still sat unmoved on a Samson Mow / JAN3 timeline of OP_RETURN messages, public notes written on the bitcoin ledger.
Bitcoin Magazine notes Liquid was founded by Adam Back's Blockstream and that the federation is a 15-member multi-signature wallet that needs 11 of 15 keys to move treasury. It puts the SideSwap withdrawal near 4,019.4 BTC and says the proof-of-reserves page then showed a little over 207 BTC left. Some reads of an Elements inflation bug creating L-BTC before a peg-out are analysis from Bitcoin Magazine and SideSwap claims, not a court finding.
The one-for-one promise ran through a single reserve pool and a permitted peg-out path. Calling yourself a white hat does not put the coins back. The sidechain is paused while Blockstream negotiates on the ledger.
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