Liquid Network resumes block production after $320M exploit

Liquid Network said it has brought block production back online after a major withdrawal from its federation wallet, but it is limiting activity as staff monitor the system for stability. Blocks are being signed and validated by functionary nodes, but the network is intentionally not processing transactions while operators confirm full stabilization.

Network operators reported that required software updates have been deployed to both functionary and bridge nodes, and that functionary nodes are again producing valid blocks. Despite that progress, peg operations remain suspended; peg-outs authorized by the PAK and other reserve-moving functions will not resume until the BTC/L-BTC reserve is restored.

The disruption began when actors claiming to be white-hat hackers removed roughly 4,000 BTC — about 95% of the federation wallet’s approximately 4,200 BTC balance — exploiting a bug in Elements, the open-source software that powers Liquid. After Blockstream confirmed that affected bridge nodes had been patched, the actors returned about 3,400 BTC, leaving roughly 598 BTC outstanding as of Sept. 7.

As part of the recovery effort, Liquid released an emergency update to Elements (version 23.3.4) to address a proof-verification cache vulnerability linked to the incident. The patch hardens cache key handling for range proofs and is a component of the network’s broader plan to restore reserves and return to normal operations.