The Liquid Network announced on Tuesday that it is entering the final stages of recovery with enhanced security, more than a month after hackers stole 4,000 bitcoin from the network's federation wallet. At the time of the theft, the bitcoin was worth about $320 million.
According to a blog post, the final phase involves reestablishing the network's full 1:1 bitcoin backing, followed by the controlled reactivation of Federation peg-outs for authorized PAK key holders. The post stated that the Federation, Blockstream, and independent security experts have made substantial progress toward this objective, with the necessary technical infrastructure and safeguards now in place.
The post also noted that phased swaps have been introduced again. Blockstream CEO Adam Back wrote on X on Tuesday that swaps were working again.
Liquid is a layer-2 created by Blockstream that allows users to quickly move assets backed 1:1 with bitcoin. Users can swap stablecoins for bitcoin and bitcoin on the Lightning Network on apps that support the Liquid Network.
Hackers obtained the 4,000 bitcoin by exploiting an inflation bug on the Liquid sidechain to create over 4,000 LBTC—a token supposedly backed by bitcoin—that did not exist before, and then cashed them out for real on-chain BTC. The hackers claimed to be white hat hackers and communicated with Blockstream via messages written into Bitcoin blocks. However, critics argue they were not so 'white' since they kept 15% of the stolen funds, worth millions.
In one message, the hackers criticized Blockstream as 'delusional, greedy, and arrogant' and threatened to reveal all of Blockstream's encrypted messages in the exchange unless the company paid them 10% of the bitcoins as an official bounty. The message read: 'You SHALL pay 10% using your own money as bug bounty or you will cause all your holders a 15% loss for your irresponsibility and stinginess.'
The hackers are still holding onto around 600 bitcoin—15% of the total funds—worth close to $50 million at today's prices as per the latest public knowledge. It is not clear if Blockstream reached a settlement with the hackers in private.
