Liquid Network
Ninety-five per cent of the reserves walked out, and the fix had been written a month earlier
A seven-year-old shortcut in a verification cache let someone conjure L-BTC out of nothing. The patch existed on 3 August. It was never released.
Liquid stopped on Sunday night. By Monday morning the people on this page had assembled, between them, a better account of what happened than any single one of them had at the start — which is the thing a network is actually for, and it does not happen often enough to go unremarked.
The mechanism is almost banal. Liquid hides amounts and asset types behind cryptographic commitments and range proofs. Verifying those proofs is expensive, so about seven years ago a cache was added: check a proof once, and if the same bytes turn up again, do not check them twice.
The cache compared the range-proof bytes and the value commitment. It did not compare the asset type, and it did not compare the output script. So an output carrying a different asset and a different spending condition could present a proof that had been valid for something else, and the cache would wave it through. That is enough to create L-BTC with no bitcoin behind it.
From there nothing clever was required. The fabricated tokens went through SideSwap for real bitcoin, and the peg-out did exactly what a peg-out does: burned the tokens, and had the Federation multisig send the coins out. In markusturm's account, 3,996 bitcoin.
The part that will be argued about for weeks is the timeline. Blockstream had already found the cache bug and committed a fix on 3 August 2026, merging it to master on 1 September. No release carrying that patch was ever published, and SideSwap was still running an unpatched build. Nobody on this page could say why.
gandlaf21 spent the evening trying to make the official framing cohere and could not: tf does that even mean: they withdrew it with that PAK key, but the key wasn't compromised?? Makes no sense
Others read the chain rather than the statements. optout noticed the coins had not actually gone anywhere: The ~4000 coins are being moved to the same address in this tx, so not really transferred.
gandlaf21, checking again the next morning: Kinda crazy that it still hasn't moved since, by either party
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Whether "white hat" survives contact with the facts is the open question. Blockstream is negotiating with somebody who is holding 95% of a federation's reserves and has published terms. Gzuuus was blunt — Hacked on Sunday... And they call themselves white hat hahaha evil
— and Alan ₿ read the on-chain message as insurance: "We are whitehats" feels like a cover in case the hackers get caught eventually
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