Liquid Network halted operations after persons claiming to be white-hat hackers withdrew approximately 4,000 BTC from the sidechain's federation wallet, according to a post on X. The withdrawal totaled roughly $320 million at the time of the transfer.
The actors left an onchain message stating "we are whitehats. contact us on chain." Blockstream, the company behind Liquid, attempted direct contact with the withdrawing parties. Liquid's pause halted all network activity, preventing new transactions from processing across the federation-managed sidechain.
Liquid Network operates as a sidechain pegged to the Bitcoin blockchain, allowing faster transactions and custom asset issuance for participating exchanges and traders. The federation wallet holds bitcoin reserves that back the sidechain's peg mechanism. A federation of functionaries manages the wallet through multi-signature controls, with Blockstream overseeing protocol operations.
White-hat disclosures in cryptocurrency typically involve security researchers identifying and reporting vulnerabilities to an organization before public disclosure. The actors left an onchain message identifying themselves as white-hats rather than removing the funds to an external address. Blockstream has not yet disclosed whether it has successfully contacted the withdrawing parties or whether any recovery mechanism is underway.
The 4,000 BTC withdrawal represents a material portion of Liquid's circulating pegged bitcoin supply. Federation-managed sidechains depend on the security assumptions of their signing parties; a compromise affecting multiple federation members or a vulnerability in the multi-signature scheme could allow unauthorized access to reserve holdings. Blockstream's immediate operational pause treated the withdrawal as a network-level event.
Blockstream said it is working to establish contact with the actors. The number that decides whether this resolves as a coordinated security disclosure or a security incident is whether Blockstream recovers communication and agreed-upon terms within 72 hours.
