💸 The ~$320M abnormal peg-out from Liquid Network may not have been a key-compromise incident at all. On Sep. 6, nearly 4,000 BTC was withdrawn from the Liquid Federation wallet. But according to Liquid and SideSwap, the Peg-out Authorization Key (PAK) was not compromised, and no other signing keys were stolen. 🔋What makes this incident more interesting is that the withdrawal still went through the normal peg-out flow, with at least 11/15 functionaries ultimately signing the Bitcoin transaction. 🛡️This suggests the failure may not have been “the attacker stole a key and signed the withdrawal,” but rather that a state which should never have been considered valid was accepted as valid, after which downstream components completed authorization and signing under normal rules. 🖲️SideSwap currently says the issue appears to originate from a bug in Elements. The self-described white hats have since communicated with Blockstream via OP_RETURN messages and said they will return “most” of the BTC after the fix has been deployed across all nodes. Key Takeaway: if every signer is validating the same flawed state, even perfectly secure keys can still produce the wrong outcome. #Bitcoin #LiquidNetwork #Web3Security