Liquid Network loses $320m in Bitcoin exploit

September 07, 2026 (MLN): A Bitcoin settlement network relied upon by cryptocurrency exchanges has come under attack, with roughly $320 million worth of bitcoin drained from its reserves in the latest security lapse to rattle the crypto industry this year.

The breach struck Liquid Network, a sidechain launched by Blockstream in 2018, after purported "white-hat hackers" withdrew close to 4,000 of the 4,200 bitcoin held in its federation wallet.

The network is jointly overseen by a federation comprising more than 80 exchanges, infrastructure providers and asset managers.

Reports suggest the hacker behind the exploit is positioning the move as an ethical one, offering to return the funds once the flaw that enabled the breach is patched, according to coindesk.

In response, Liquid Network confirmed that user wallets would be affected and issued an apology for the disruption, while suspending all new transactions on the platform.

It said federation members were working to address the issue and bring network activity back to normal.

The significance of the incident lies in what Liquid was designed to do: speed up Bitcoin settlements for exchanges by issuing L-BTC backed one-to-one against bitcoin held in reserve.

With nearly the entire reserve now drained, questions have emerged over the resilience of that underlying model.

Notably, the breach did not involve a compromised password or private key, the method behind the majority of this year's crypto hacks.

Instead, funds exited through SideSwap, a platform that operates as a routine, approved part of the trading infrastructure.

A subsequent review by Blockstream revealed that a software bug had improperly generated bitcoin within a system known as Elements.

Because SideSwap could not separate the bug-generated coins from legitimate ones, it processed them identically. Other asset classes on the Liquid network were left untouched.

The world's largest cryptocurrency was last trading 0.18% lower at $79,659.

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