Liquid Network Hackers Return 85% of Drained BTC as Blockstream Fixes Vulnerability

The Liquid Network has reportedly recovered most of the Bitcoin lost in the recent security exploit. As Blockstream fixed the software vulnerability, the hackers returned 3,400 BTC worth around $268 million.

Although most of the stolen funds are back to the network, it doesn’t necessarily mean that the security incident is over. The hackers are still holding about 598.5 BTC. It remains uncertain whether they will return the remaining BTC, leaving questions over the network’s reserves and the future stability of L-BTC.

Liquid Network recovers most of the stolen funds

As we reported yesterday, Blockstream’s Liquid Network had 4,000 BTC stolen in an exploit. But now, the story has taken another turn after Blockstream fixed the vulnerability that caused the attack. After this update, the hackers returned a significant portion of the stolen funds to the network.

Reportedly, the Liquid Network recovered about 3,400 BTC, valued at around $268 million.  After Blockstream fixed the vulnerability, the attackers sent back these coins, which account for about a massive 85% of the drained funds, to the Liquid Federation’s multisig wallet.

L-BTC moves were frozen

The attackers, who claimed to be “white-hat hackers,” had initially issued a warning that read:

“Please fix the bug first. The chain is under risk at latest commit right now. Make sure every node is patched. Then we will transfer the money back safely after confirming the fix.”

Following the exploit, Liquid Network disabled its bridge nodes. As the platform detected suspicious transactions, it asked major exchnages to pause L-BTC deposits and withdrawals. This action helped the network stop BTC from moving further. Blockstream also confirmed that the key used to authorize the withdrawal was not compromised.

Notably, exchanges like Bitfinex and platforms like Aqua wallet paused L-BTC deposits and withdrawals as a precaution. The move was intended to limit the further movement of funds while Blockstream continued to investigate the exploit.

Remaining BTC raises concerns over L-BTC backing

However, hackers still hold 598.5 BTC. While the incident is now under control, it is not completely over. There is not yet any confirmation about the hackers’ potential plan with the remaining BTC. Thus, it leaves a portion of the network’s funds unaccounted for.

What is more important to note is that the missing Bitcoin could create problems for Liquid’s L-BTC peg. L-BTC is designed to hold a 1:1 value with Bitcoin. This means each L-BTC is backed by one BTC held in the network. If the remaining coins are not recovered, it raises serious concerns about depegging. The reserve shortage may put pressure on the peg, leading to L-BTC trading below the value of Bitcoin, with users losing confidence in its backing.