The Liquid Federation says every LBTC token on its Bitcoin sidechain is once again matched one for one by bitcoin in its reserves, closing a shortfall of roughly 600 BTC that dated back to the September exploit. Direct peg-outs through the Federation, though, are not yet back to normal.
“The network’s bitcoin reserves have been fully restored, reestablishing 1:1 BTC backing for all LBTC,” the Liquid Federation said on Tuesday. The group pointed users to Liquid’s proof of reserves, which anyone can check on their own node or through the public dashboard.
Four deposits closed the gap
AltcoinReporter traced the top-up on the Bitcoin blockchain. The Federation’s new reserve wallet received about 3,400.3 BTC on Oct. 26, which appears to be the existing reserve being moved over. Four further deposits followed, adding up to about 602.5 BTC:
- 2.53 BTC on Oct. 27, described by Liquid backers at the time as a test transaction
- 50 BTC on Oct. 28
- 300 BTC on Nov. 2, which cut the shortfall to 250 BTC
- 250 BTC on Nov. 2, confirmed in block 974,307, which closed out the remainder
That total lines up closely with the 598.5 BTC the attackers kept as a self-declared 15% fee when they sent back 3,400 BTC in September.
At the time of writing, the Liquid explorer showed 4,270.54 BTC in Federation reserves against 4,270.54 LBTC in circulation, with reserves ahead by a handful of satoshis. The Defiant, which reported the match shortly after the final deposit, put both figures at 4,268.95 at that point. The small increase since then reflects new peg-ins.
Who paid
Liquid’s statement does not say who funded the 602.5 BTC. Blockstream, the company that built Liquid and is led by Adam Back, had committed to cover the shortfall, according to The Defiant and TokenPost. On-chain, the final 250 BTC came from two wallets with no public label. AltcoinReporter could not tie those wallets to a named entity, and Liquid has not published a breakdown.
The exploit hit Elements, the software Liquid runs on, on Sept. 6. A flaw let the attackers create roughly 4,000 LBTC with no bitcoin behind it and then peg that out of the Federation’s reserve. The people behind it said they were white hats and returned most of it within days, but the 598.5 BTC they held back left LBTC short of full backing for close to two months.
What full backing does not yet mean
The restored Liquid LBTC backing covers the reserves, not the full set of Federation services. Under the staged recovery plan Liquid published on Oct. 20, the last phase has two parts: first restore 1:1 backing, then carry out a “controlled reactivation” of Federation peg-outs for authorized PAK key holders, subject to the remaining security and operational requirements.
Only the first part is done. On Oct. 27 the Federation said that normal peg-out operations “remain subject to enhanced operational controls while security hardening continues and the independent security audit nears completion.” Tuesday’s statement did not say the audit had finished or give a date for unrestricted peg-outs.
For most users that gap matters less than it sounds. Liquid reopened BTC to LBTC swaps through AQUA, Bull Bitcoin and SideSwap in October. The Federation said those three providers handled 99% of peg-out volume before the incident, and swaps have run at 1:1 since.
Governance changes are next
The Federation said its next step is “modernizing the governance structure, introducing clearer responsibilities and oversight, and implementing additional technical and operational safeguards,” with more detail promised in the coming weeks. “Restoring full bitcoin backing marks an important milestone, but our work continues,” it said.
How that governance work turns out will shape how much trust comes back to Liquid. The sidechain relies on a group of member firms running functionary hardware, and the September exploit showed how a software flaw could break the link between LBTC and the bitcoin behind it. Other bitcoin bridges are under the same scrutiny. Threshold, for example, says tBTC is fully backed by 4,320 BTC while minting stays paused.
FAQ
Is LBTC fully backed by bitcoin again?
Yes, according to the Liquid Federation and its public proof of reserves. The explorer showed reserves slightly above circulating LBTC at the time of writing.
Can LBTC holders peg out directly through the Federation?
Not on normal terms yet. Liquid’s plan calls for a controlled restart of Federation peg-outs after full backing. In the meantime, swaps through AQUA, Bull Bitcoin and SideSwap run at 1:1.
How much bitcoin was added to close the gap?
About 602.5 BTC across four deposits between Oct. 27 and Nov. 2, based on AltcoinReporter’s review of the reserve wallet.
Disclaimer: This article is for informational purposes only and does not constitute financial advice.
