The federation says reserves now back every LBTC one for one, two months after a verification flaw in Elements let an attacker mint about 4,000 tokens out of nothing. It has published no funding breakdown, and direct federation withdrawals remain restricted with no reopening date.
The Liquid Federation said on November 3 that bitcoin reserves on the Liquid sidechain are “fully restored, reestablishing 1:1 BTC backing for all LBTC,” closing a shortfall that had been open for almost two months. The gap dates to September 6, when an attacker exploited a verification flaw in Elements, the open-source software Liquid runs, and created about 4,000 LBTC without depositing any bitcoin against them.
The attacker redeemed those tokens for real bitcoin through SideSwap, a federation member that holds a peg-out authorization key. Reserves fell from about 4,205 BTC to 197 BTC, according to Blockstream's incident report as read by CoinDesk. Liquid has said its operators were not hacked and that no keys were compromised. The Block reported that the incident assessment traced the defect to cached range proof verifications.
Most of the bitcoin came back within a day. The attacker, who claimed to be a white-hat researcher, returned 3,400 BTC on September 7, leaving roughly 600 BTC outstanding. Blockstream refused a demand for a 10% bug bounty in exchange for the rest, saying it would not pay a ransom that “far exceeds their economic participation.”
The remaining balance arrived in four deposits over seven days. crypto.news itemized them as 2.5 BTC on October 27, 50 BTC on October 28, and 300 BTC followed by 250 BTC on November 2, about 602.5 BTC in total against a shortfall reported at about 600. The Block's account, drawn from posts by federation board member Samson Mow, matches the last three deposits: 50 BTC that left 550 BTC outstanding, then 300 BTC, then 250 BTC the same day. CoinDesk described only a final 250 BTC transfer and said it could not account for how that closed a gap of roughly 600 BTC.
Who supplied the bitcoin is the part the federation has not answered. Mow named Blockstream, writing “As stated many times, Blockstream” when asked about the source. The announcement itself published no funding breakdown and did not say whether other members contributed, and SideSwap thanked Blockstream and federation members without identifying who paid. Blockstream, led by Adam Back, built Liquid and maintains Elements. The distinction matters for anyone weighing what risk is left behind: one company absorbing the loss and a loss shared across federation members leave different exposures, and the announcement settles neither.
Full backing is also not the same as free redemption. Direct federation peg-outs remain restricted under what the federation describes as enhanced operational controls, with no confirmed reopening date. The Block reported that some semi-automated peg-outs have resumed and that the announcement did not say whether the restrictions had been lifted. The federation says governance and oversight changes are coming in the next few weeks.
The one-for-one rate users can actually get runs through a member's own balance sheet. SideSwap reopened BTC and LBTC swaps on October 20 at one for one less a 0.1% fee, paying out of its own wallet, an arrangement crypto.news noted can queue when that balance runs low. Elements v23.3.4, the release that fixed the flaw, shipped on September 9. Liquid resumed block production the same day and user transactions on September 10, with federation peg-outs disabled at that point.
Chain records showed about 4,270.54 BTC backing LBTC on November 3 and about 4,268.95 BTC when the shortfall closed, crypto.news reported. That sits above the roughly 4,205 BTC the reserve held before the exploit, which net peg-in activity over the intervening two months would account for, though the federation has not published a reconciliation.
Unbacked tokens minted through a software defect have become a recognizable failure mode, and the recoveries rarely look like this one. An attacker minted 10 million CYS through Cysic's cross-chain bridge in October and moved most of it out within half an hour, leaving a blacklist that caught 28% of the total. Qubic halted its mainnet in October so that most of a 1,404-wallet drain would stay stranded on-chain, and the stoppage was the only thing holding it. Drift's recovery pool opened in October paying a little over a cent for every dollar it verified as lost.
Liquid's holders ended with backing they can verify on-chain, which is the outcome those other users did not get. The exit is the part still missing. Until direct peg-outs reopen, leaving Liquid means going through a member's wallet rather than the federation's.
