Liquid Network's Bitcoin Redemptions Stay Frozen 35 Days After $320M Exploit, Reserve at 86%

Published October 12, 2026, 12:15 PKT. Based on October 11 Mempool Liquid explorer snapshots and reporting by The Defiant, Crypto Briefing, Cryptonews, Cointime, Odaily and CryptoSpiel.

Bitcoin redemptions on the Liquid Network have been suspended for 35 days as of October 11, with the sidechain's federation reserve covering about 86% of outstanding Liquid Bitcoin (L-BTC). An October 11 snapshot from Mempool's Liquid explorer showed 3,632.23 BTC in the federation reserve against 4,234.76 L-BTC outstanding, leaving a shortfall of about 602.53 BTC, according to The Defiant's calculation.

How a software bug drained the reserve

The freeze dates to September 6, 2026, when a bug in Elements, the open-source software that powers Liquid, let someone create and redeem L-BTC without authorization, according to Liquid's incident report. Between 3,996 and 4,000 BTC left the federation reserve, valued at about $320 million at the time. The reserve had held about 4,205 BTC before the exploit and fell to just 197 BTC at the worst point.

The federation members' signing keys were not compromised, and SideSwap's Peg-out Authorization Key was not compromised either, both parties said. Instead, the attacker exploited the Elements bug to mint unbacked L-BTC and then used the normal peg-out process, through a federation member's authorization key, to convert it into real Bitcoin.

3,400 BTC returned, $49.7 million kept

Self-described white-hat actors returned about 3,400 BTC on September 7, roughly a day after the drain, leaving between 598 and 603 BTC unreturned. Blockstream's September 23 incident assessment put the amount still subject to recovery at about 602 BTC.

The rest remains in the attackers' wallet: 598.5 BTC, worth about $49.69 million on October 11, per CryptoSpiel's reporting. The attackers have demanded a 10% bounty, which Blockstream rejected, demanding instead the immediate return of the remaining Bitcoin.

When redemptions restart

Liquid resumed normal block production and user transactions on September 10, but peg-outs stay suspended until full one-for-one BTC backing of every L-BTC in circulation is confirmed and required software updates, testing and independent security reviews are complete, Liquid has said. Its published recovery plan gives no firm reopening date. Liquid says an independent external security audit of Elements v23.3.4 is underway, and the federation is updating its PAK list while moving redemption keys into cold storage.

Some L-BTC holders are exiting through other routes: one holder reported spending several weeks moving funds through Sideswap and Sideshift.ai, with about 5% lost to spreads and fees, per Cointime. Patience is thinning elsewhere: one longtime Blockstream supporter wrote on X that communications have been "sparse and inconsistent" and that with backing at 86%, "14% of every holder's assets are gone."

This article is news reporting and is not investment advice.

Sources

• The Defiant, via Cryptonews and Crypto Briefing, primary source for the October 11 Mempool snapshot figures (3,632.23 BTC reserves, 4,234.76 L-BTC outstanding, about 602.53 BTC gap) and the September 6 exploit details
• Blockstream and Liquid incident reports, primary source for the 4,205 BTC pre-exploit reserve, the 197 BTC low point, the Elements bug mechanism, and the September 23 assessment of about 602 BTC still to recover
• Odaily, "Liquid Network redemption freeze hits 35 days" (October 11, 2026), secondary source for the 35-day timeline, the 598.5 BTC attacker balance, and the audit and PAK list updates
• CryptoSpiel, "Liquid Network at 86% Backing as Bitcoin Redemption Freeze Drags On" (October 11, 2026), secondary source for the $49.69 million valuation, the rejected 10% bounty demand, and holder reactions
• Cointime (October 11, 2026), secondary source for the Elements v23.3.4 audit, the cold-storage move, and user exit costs through Sideswap and Sideshift.ai