Liquid Network pauses after purported 'white-hat' hackers withdraw $320 million in bitcoin

Liquid Network said Sunday that purported white-hat hackers withdrew approximately 4,000 bitcoin, worth about $320 million, from its federation wallet, prompting the Bitcoin sidechain to pause network activity.

The withdrawal represented roughly 95% of Liquid's reported bitcoin reserves, which stood at approximately 4,200 BTC before the incident.

"We are aware of a security incident on @Liquid_BTC," the network wrote.

According to Liquid, the funds were withdrawn through the SideSwap PAK, or Peg-out Authorization Key. The network said that key had not been compromised, nor had any others. Liquid did not explain the root vulnerability that allowed the withdrawal. 

An onchain message in a bitcoin transaction linked to the incident read: "we are whitehats. contact us on chain."

Liquid said it had notified crypto exchanges which have either suspended deposits and withdrawals for LBTC, Liquid's Bitcoin-backed token, or would do so. Liquid also disabled bridge nodes temporarily, preventing new transactions from being submitted to the network.

"Effectively, the Liquid sidechain is paused until this issue is resolved," the statement said.

Other assets issued on Liquid, including USDT, DePix and real-world assets, were unaffected by the security incident, according to the network. However, Liquid warned that wallets would be impacted by the disruption.

Liquid is a Bitcoin sidechain designed for faster, confidential transfers and the issuance of digital assets. BTC locked on the Bitcoin network is represented as LBTC on Liquid, with federation operators responsible for securing the underlying bitcoin.

The network said federation members were working to resolve the incident and restore normal activity. Liquid did not disclose when it plans to restart the network or the details of its messages with the purported white-hat hackers. 

This is a developing story.