Liquid restores full BTC backing for LBTC after exploit drains reserves
Nearly two months after a software flaw disrupted redeemability on the Liquid Network, all LBTC tokens are backed one-for-one by bitcoin again. The restoration follows a final 250 BTC transfer, while the federation still has not disclosed who supplied the roughly 600 BTC needed to eliminate the remaining gap.
Highlights
- Liquid Federation restored full 1:1 BTC backing for all LBTC after transferring a final 250 BTC, closing the reserve gap from the September exploit.
- The source of the last 600 BTC used to replenish reserves, valued over $40 million, remains undisclosed, raising ongoing transparency concerns.
- Users continue 1:1 LBTC-to-BTC conversions via providers like SideSwap, while direct federation withdrawals operate under enhanced controls pending governance updates.
Reserve restoration and remaining funding questions
As reported by CoinDesk, citing the Liquid Federation on X, the network's bitcoin reserves are now fully restored, reestablishing 1:1 BTC backing for all LBTC after a final 250 BTC transfer. The federation says the balance can be verified through Liquid's public dashboard, marking the formal end of the shortfall created by the September exploit.The gap dates to Sept. 6, when a bug in Liquid's software let an attacker mint about 4,000 LBTC without backing and redeem the tokens for real bitcoin. Blockstream's incident report says the reserve fell from about 4,205 BTC to 197 BTC, and although the attacker later returned 3,400 BTC, about 600 BTC remained unaccounted for.
The federation has not said where the last 600 BTC, worth more than $40 million based on the article's figures, came from. That leaves an unresolved governance and transparency question even as the technical backing of the token is restored.
Operational access and market implications for Liquid users
Liquid is a Bitcoin sidechain run by a federation of firms led by Blockstream and is used by exchanges and traders seeking faster bitcoin transfers than the main network typically allows. Users lock BTC with the federation and receive LBTC in return, with the token designed to remain redeemable for one bitcoin at any time.Users have been able to exchange BTC and LBTC at a one-to-one rate through providers such as SideSwap since late October. Direct withdrawals through the federation remain under enhanced operational controls, and the federation says more details on governance changes are expected in the coming weeks.
Our earlier article on Q3 cybersecurity funding highlighted how investor appetite stayed strong as total capital rose to $6.8 billion despite fewer deals, driven by larger late-stage rounds. We also noted that AI- and identity-security companies attracted much of the money, alongside continued consolidation via major acquisitions—showing how security risks are shaping where capital flows.
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