It has been 35 days since an attacker exploited a vulnerability in the Liquid Network’s Elements software, draining nearly 4,000 BTC from the protocol, and although 3,400 BTC has since been recovered, redemptions of LBTC for actual bitcoin remain suspended as an independent external security audit of Elements v23.3.4 is underway.
Key Takeaways
- As of Oct. 11, 2026, Liquid Network’s peg-out operations remain frozen 35 days after an exploit drained nearly 4,000 BTC.
- Attackers returned 3,400 BTC but still hold 598.5 BTC worth $49.69 million, leaving the protocol’s creators frustrated.
- Blockstream faces growing criticism as an external security audit continues with no date for restoring peg-outs.
Liquid Network Peg-Outs Remain Frozen as 598.5 BTC Stays in Attacker’s Wallet
Liquid users are still unable to redeem LBTC for bitcoin, with the protocol’s peg-out operations still suspended. The ordeal began more than a month ago when self-described white hat hackers exploited the layer two (L2) network and made off with nearly 4,000 BTC.
By Sept. 7, 2026, the attackers had returned approximately 3,400 BTC but retained 598.5 BTC, insisting that Blockstream, Liquid’s creator, owed them a 10% bounty. Blockstream rejected that proposition outright and demanded the immediate return of the remaining bitcoin.
That demand has apparently fallen on deaf ears, and more than a month later, the situation remains at a standstill. The attacker’s wallet still holds 598.5 BTC, currently valued at $49.69 million, while the address continues to attract a barrage of address-poisoning attempts and peculiar messages embedded in OP_RETURN transactions.
Blockstream Faces Mounting Criticism as Liquid Users Lose Patience
Liquid users have grown increasingly frustrated with the prolonged disruption, having spent weeks waiting for LBTC-to-BTC swaps to resume. One longtime Blockstream supporter expressed their disillusionment on X, admitting that the company’s handling of the Liquid Network incident had begun to erode their confidence in it.
“I hate to say this but I am disappointed with Blockstream’s [handling] of the Liquid Network drain. Communications have been sparse and inconsistent,” the X user Sovereign Money wrote.
The account added:
“There still is no Peg-out service available, and the Liquid network is still sitting at 86% backing. So 14% of every holder’s assets are gone. I feel for the people who went all-in on the Liquid Network and Blockstream.”
External Security Audit Underway as Liquid Federation Works to Restore Peg-Outs
The Liquid Network did release an update on Sept. 29, 2026, noting that peg-out operations were still down. “An independent external security audit of Elements v23.3.4 is now underway, providing an additional layer of validation as we work toward the safe restoration of peg-out operations,” Liquid’s X account said. “In parallel, the Liquid Federation is coordinating an update to the PAK list, including the replacement of existing entries and ensuring all peg out keys are properly secured in cold storage.”
Liquid Network’s social media account added:
“These efforts are important steps toward resuming secure peg-out operations.”
When peg-out operations will resume remains anyone’s guess, but some LBTC holders have decided they are done waiting. Several discussions circulating on social media detail how users have managed to move their funds through alternative applications, effectively finding ways around the prolonged suspension.
“I ended up paying the ‘Not your keys, not your coins’ tax to get my Bitcoin out of the [Liquid Network],” one person explained. “It cost ~5% in spread and fees across Sideswap and Sideshift.ai, taking weeks to migrate due to lack of liquidity, but the peace of mind was worth it.”