Liquid Network Puts Reserve Rebuild Ahead of Bitcoin Peg-Out Restart

Liquid Network is enabling Bitcoin (BTC) conversions through swap providers in stages after an exploit involving about 4,000 BTC, while direct withdrawals from network reserves remain restricted.

Users can again exchange BTC and LBTC through participating swap providers. These swaps offer a way to convert LBTC to BTC while direct federation peg-outs, which release BTC from reserves, remain blocked.

Liquid is a Bitcoin sidechain developed by Blockstream. Its LBTC token is designed to be backed 1:1 by BTC. An inflation bug allowed more than 4,000 unbacked LBTC to be created and exchanged for BTC. Most of the roughly 4,000 BTC taken has been returned, while about 600 BTC remains unrecovered.

Technical infrastructure and safeguards are in place ahead of controlled federation peg-out reactivation. The next phase calls for restoring full 1:1 backing before authorized holders of peg-out keys regain direct withdrawals.