Liquid announced that all LBTCs are once again backed one-to-one by BTC, as the Bitcoin reserve shortfall caused by an attack on the network was closed about two months later.
According to CoinDesk, the Liquid Federation said in a November 2 announcement that reserves had been fully replenished with the latest 250 BTC transfer. This restored the arrangement, disrupted by the September 6 attack, under which every LBTC is backed by one Bitcoin.
Liquid is a sidechain that exchanges and investors use to transfer Bitcoin more quickly than on the main network. Users lock their BTC with the federation and receive LBTC in return; the system is built around these tokens being backed one-to-one by Bitcoin.
Reserves had fallen from 4,205 Bitcoin to 197
The attacker exploited a vulnerability in Liquid software to create about 4,000 LBTC that were not backed by Bitcoin and convert them into real BTC. According to Blockstream’s incident report, the reserve fell from about 4,205 BTC to 197 BTC as a result.
The attacker, who identified as a white hat hacker, returned 3,400 BTC the following day. Even so, a shortfall of about 600 BTC remained. The federation’s latest announcement shows that this deficit has now been covered.
Backing restored, additional checks continue for direct withdrawals
The reserve balance can be tracked on the network’s public dashboard. The source of the approximately 600 BTC used to cover the shortfall was not disclosed.
Since late October, users have been able to exchange BTC for LBTC at a one-to-one rate through service providers such as SideSwap. Direct withdrawals from the federation continue under enhanced operational checks.
The federation also said it would share details of planned changes to the network’s governance in the coming weeks.
Not investment advice.