LBTC’s backup plan: 4,000 BTC vanishes, then 1:1 backing returns

The Liquid Federation said on November 3, 2026, that Liquid Network’s Bitcoin reserves had been fully restored, reestablishing 1:1 BTC backing for all LBTC two months after self-described white-hat hackers withdrew about 4,000 BTC from the network’s federation wallet. The federation did not disclose how the shortfall was covered, but said users running their own Liquid nodes can independently verify that assets match liabilities.

Liquid restored BTC<>LBTC swaps at a 1:1 rate through participating providers several weeks before the reserve announcement, allowing the network to regain full backing for LBTC, the token representing Bitcoin on Liquid. Blockstream CEO Adam Back posted a screenshot of the network dashboard showing assets matching liabilities at 100%, with a reserve deficit of 0.00 BTC.

Asked on X what would prevent another hack, Back cited three hardened “lines of defense”: refreshed peg-out authorization keys now held in cold hardware wallets, disabled proof validation caches alongside a node bug fix, and consensus rules hardened to “fail closed.” He added that Liquid has also undergone multiple third-party audits and wrote, “And lesson: treat with suspicion (don't trust, verify) AI suggested fixes.”

Back discussed AI’s expanding role in security in an October 20 interview with Bloomberg Television, describing “a wave of AI-assisted security analysis” over the previous couple of months. He said, “AI, of course, is a tool to help develop code and to secure the code, but also it can be used to find defects,” adding that it had been “affecting many companies in the sector.” At the time, he said the hacked funds remained “under investigation.”

The withdrawal occurred on September 6, when the purported white-hat hackers took about 4,000 BTC, then worth around $320 million, from Liquid’s federation wallet and communicated with Blockstream through PGP-signed messages embedded in Bitcoin transactions. The next day, they returned 3,400 BTC, worth about $269 million, after Blockstream said Liquid’s bridge nodes had been patched.

Launched by Blockstream in 2018, Liquid is a Bitcoin sidechain designed for faster and more private transfers. Users lock BTC in a wallet controlled by the federation, a group of exchanges and other crypto companies that operate the network, and receive the same amount of LBTC in return. The Liquid Federation is now modernizing the network’s governance structure, introducing clearer responsibilities and oversight, and adding further technical and operational safeguards, with more details due in the coming weeks.