Liquid Network Still Can't Pay Out: 602 BTC Missing 35 Days After Exploit
Liquid Network is processing blocks again. Its holders still cannot cash out.
The peg is still frozen
Peg-outs — the mechanism that turns Liquid Bitcoin back into real Bitcoin — have been suspended since September 6, 2026. The sidechain's reserve sits about 603 BTC short of what it needs to back every L-BTC in circulation. That is roughly 85.8% coverage.
Redemptions will not restart until the reserve fully backs every token and security reviews are finished. Liquid requires one bitcoin in reserve for every L-BTC before it reopens the peg.
What broke
The trouble started with a bug in Elements, the software that powers Liquid. An attacker exploited a flaw in the rangeproof verification cache, minting an output whose value was not backed by its inputs. That weakness dates to April 25, 2018, when the cache key was simplified.
No reviewer, internal or external, caught it before it was exploited. The attacker then pushed the unbacked tokens through Liquid's standard peg-out process via SideSwap, a federation member holding a peg-out authorization key. Roughly 4,000 BTC left the reserve, cutting it from about 4,205 BTC to 197 BTC.
The attacker surfaced on-chain hours later claiming to be a whitehat and returned 3,400 BTC. About 602 BTC never came back. The wallet still holding the rest is down to roughly 598.5 BTC, worth around $49.69 million.
The standoff
Blockstream rejected the attacker's 10% bounty demand and is pressing for the remaining coins. It is auditing Elements v23.3.4, updating the peg-out authorization key list, and moving redemption keys into cold storage.
Transfers restarted on September 10, 2026, so L-BTC can move inside the network again. Other Liquid assets, including USDT and tokenized real-world assets, kept operating normally.
Why holders should care
A pegged asset is only as strong as the federation standing behind it. Liquid's reserve gap is public and measurable, yet there is still no announced date for when redemptions resume. For anyone holding wrapped or bridged coins, the exit door is the feature that matters most — and it is the one currently locked.