The Liquid Federation says the bitcoin reserves of the Liquid sidechain are back to full 1:1 backing for all LBTC, nearly two months after an exploit in which about $320 million in bitcoin was withdrawn, The Block reported on November 3.
About 4,000 BTC was taken in the September 6 exploit. The attacker returned roughly 3,400 BTC the next day, after Blockstream patched the affected bridge nodes, but kept about 600 BTC. Blockstream refused a demand for a 10% bug bounty in exchange for the remainder. Board member Samson Mow reported a 50 BTC deposit on October 28, followed on Monday by 300 BTC and then another 250 BTC, closing the gap. Asked where the bitcoin came from, Mow wrote: “As stated many times, Blockstream.”
Liquid’s incident report traced the exploit to a bug involving cached range proof verifications in Elements, the software behind the sidechain. The attacker created about 4,000 unbacked LBTC and withdrew bitcoin through SideSwap, a federation member with a peg-out authorization key. Liquid says operators were not hacked and no keys were compromised.
Users have been able to swap between BTC and LBTC again for several weeks through participating providers. Direct federation peg-outs were restricted pending security checks, although some semi-automated peg-outs have resumed. The announcement did not say whether the remaining restrictions have been lifted. Reserves can be checked publicly on liquid.network.
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