The Liquid Network stated that, following the September hacking incident, its LBTC has been fully backed by Bitcoin again, but direct withdrawals remain restricted.
Liquid Federation confirmed in a statement on Tuesday that reserves have been fully restored, re-establishing 1:1 BTC backing for all LBTC.
Before this announcement, the Federal Reserve wallet had received multiple Bitcoin transfers, including the final deposit of 250 BTC on November 2. On-chain records show that when the gap was filled, approximately 4,268.95 BTC supported an equivalent amount of LBTC.
Liquid Network replenished a shortfall of approximately 600 BTC following a vulnerability exploit.
This recovery stems from an attack on Elements, the open-source software used by the Liquid Network, on September 6.
Blockstream explained in its security incident assessment that a vulnerability in transaction validation allowed attackers to mint approximately 4,000 LBTC without depositing the corresponding bitcoins.
Subsequently, the attacker exchanged these tokens for actual BTC via SideSwap, a federation member authorized to process withdrawals.
Due to these unauthorized transactions and other withdrawals completed before operations ceased, Liquid's reserves decreased from approximately 4,205 BTC to 197 BTC.
On September 7, the attacker returned 3,400 BTC after communicating with Blockstream using on-chain Bitcoin transaction data.
The individual claims to be a white-hat security researcher, but their identity and motives have not been independently verified.
In its September assessment, Blockstream set the remaining unrecovered amount at approximately 602 BTC.
Reserve replenishment accelerated in late October, beginning with a deposit of 2.5 BTC on October 27, followed by another deposit of 50 BTC the next day.
On November 2, two larger transfers completed the process, adding 300 BTC and 250 BTC to the federal wallet, respectively.
Subsequently, SideSwap confirmed the sequence of deposits and stated that reserves are aligned with the circulating LBTC supply.
As of November 3, updated data shows that 4,270.54 BTC are backing an equivalent amount of LBTC, reflecting additional activity following the initial recovery.
Who replenished the Bitcoin reserves for the Liquid Network?
Although on-chain records show these deposits, the federal government's latest statement did not specify which parties provided the alternative bitcoins.
This is important because returning stolen funds and providing new bitcoins are two different recovery methods.
Of the initially withdrawn amount, the attacker returned 3,400 BTC in September. The remaining shortfall was covered by subsequent deposits.
According to reports, Samson Mow, a member of the Liquid Federation board, identified Blockstream as the source of funding when asked about the origin of the funds.
"As I've said many times before, Blockstream," Mow wrote in response to a question on X.
However, the federal government has not disclosed the detailed allocation of alternative funding, nor has it indicated whether any other members have contributed.
In its statement on November 3, SideSwap thanked Blockstream and its federal members for completing the recovery, but did not independently disclose the source of the funds.
The restored balance indicates that sufficient Bitcoin has returned to reserves. However, this alone does not identify the owner of the wallet that provided these funds.
Liquid Network has resumed exchanges, but direct withdrawals remain restricted.
The Liquid Network uses a mechanism where BTC deposited on the Bitcoin mainchain is represented as LBTC on its sidechain.
Users can transfer LBTC within Liquid, and authorized federation members are responsible for redeeming it back to BTC.
After the vulnerability was exploited, the federal team suspended withdrawals and temporarily halted network activity while developers fixed the issue.
According to previous reports from crypto.news, Liquid resumed block production in September and gradually returned to normal trading.
The network subsequently introduced an updated authorization procedure and began an independent security review of Elements v23.3.4.
According to the recovery plan as of October 20, the federal authority has allowed participants to resume BTC/LBTC exchanges, but continues to maintain restrictions on direct peg-outs.
SideSwap announced that its exchange service has been reinstated as of October 20, allowing customers to exchange LBTC for BTC at a 1:1 rate, subject to a 0.1% fee.
However, these payments currently come from SideSwap's own Bitcoin wallet, so funds need to be manually replenished.
The provider warns that withdrawals may be queued when available Bitcoin balance is insufficient.
Direct federal peg-out remains subject to additional security and operational requirements, and a reopening date has not yet been confirmed.
The federal program adjusts governance and enhances protection.
The federation stated that, following this incident, it plans to modernize its governance structure and implement clearer role assignments and oversight mechanisms.
Its planned work also includes additional technical and operational safeguards to prevent similar failures from occurring again.
Blockstream previously released Elements v23.3.4 to fix this vulnerability and adjust the software's transaction validation process.
The federation has been continuously updating the authorization arrangements used by members when processing withdrawals, including procedures involving offline Bitcoin keys.
The November statement promised that more information about governance changes and security measures would be provided in the coming weeks.