Liquid Network, a Bitcoin-based payments and settlement network, has halted new transactions after approximately $320 million worth of bitcoin was withdrawn from its federation wallet in a major security incident.
The network disclosed the incident on September 6, saying roughly 4,000 BTC out of the 4,200 BTC held in its Liquid Federation wallet had been withdrawn. Liquid described the parties behind the withdrawals as “purported white-hat hackers,” while acknowledging that the incident would affect Liquid wallets.
The scale of the withdrawal makes the incident one of the more significant recent security events involving Bitcoin infrastructure, particularly because Liquid is designed to provide faster settlement and asset transfers around the Bitcoin ecosystem.
Liquid Network Stops New Transactions
Liquid said it had halted new transactions as a precaution following the withdrawals. The company also said the funds were moved through SideSwap, a settlement platform authorized to handle withdrawals from the network.
The network’s statement adds an unusual element to the incident: Liquid said the cryptographic key used in the transactions was not compromised.
That distinction could become important as investigators and the network work to determine precisely how the bitcoin was removed from the federation wallet.
A compromised private key would point toward one type of attack, while an authorized withdrawal process being manipulated or abused could suggest a very different security problem.
Nearly the Entire Federation Wallet Was Drained
The amount involved is particularly significant relative to the wallet’s holdings.
Liquid said approximately 4,000 BTC were taken from a wallet containing about 4,200 BTC. At the reported value of roughly $320 million, the incident effectively removed the overwhelming majority of bitcoin held in that particular federation wallet.
The network’s decision to stop new transactions shows the potential consequences for users and applications relying on Liquid for Bitcoin-related transfers.
Liquid is a Bitcoin sidechain designed to support faster settlement and additional functionality around Bitcoin. Its infrastructure is used for transfers and settlement involving bitcoin and other digital assets.
An incident affecting the federation wallet therefore goes beyond an isolated user account. It raises broader questions about the security assumptions surrounding infrastructure that connects users and applications to Bitcoin-based financial services.
The “White-Hat” Label Remains Unclear
Liquid’s description of the actors as “purported white-hat hackers” also leaves important questions unanswered.
White-hat hackers generally identify security vulnerabilities and work with organizations to resolve them rather than exploiting them for personal gain. However, Liquid’s wording indicates that the network has not established that the individuals involved were acting with authorization or in the network’s interests.
The movement of such a large amount of bitcoin will therefore be closely watched by the broader crypto industry.
The incident also highlights the difference between Bitcoin’s underlying blockchain and the infrastructure built around it. Bitcoin itself may continue operating normally while a sidechain, bridge, exchange or custody system connected to the ecosystem experiences a security failure.
Security Remains a Critical Issue for Bitcoin Infrastructure
The Liquid incident comes as the crypto industry continues moving toward more sophisticated infrastructure for settlement, tokenization and institutional finance.
As larger amounts of capital move through these systems, the consequences of infrastructure failures become increasingly significant. Security is no longer limited to protecting individual wallets or exchanges; it also involves the governance, authorization and operational controls surrounding blockchain networks.
For Liquid, the immediate priority is likely to determine how the withdrawals occurred, protect remaining assets and establish when normal transaction activity can safely resume.
For the broader market, the incident is another reminder that Bitcoin infrastructure can have security risks even when the underlying Bitcoin network itself has not been compromised.
The investigation into the $320 million withdrawal could ultimately provide important lessons for other sidechains and blockchain-based settlement networks handling institutional-scale assets.
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