Liquid Network Nears Full Bitcoin Reserve Restoration
Liquid Network’s Bitcoin reserves are nearing complete restoration, with JAN3 CEO Samson Mow indicating that the sidechain’s remaining 600 BTC shortfall is expected to be fully covered in the coming days.
Test Transaction Signals Progress
A significant step toward this goal occurred on October 27, 2026, when a test transaction of 2.53048101 BTC was successfully deposited into the Liquid federation wallet. Such precise test transfers are crucial for custodians to verify the integrity of the system before processing larger sums.
Following this deposit, the federation wallet now holds approximately 3,649 BTC. This is in circulation against 4,249 L-BTC, the token designed to represent Bitcoin on the Liquid sidechain. This currently represents about 85.88% coverage, leaving the aforementioned gap of roughly 600 BTC.
Understanding L-BTC and the Exploit
For those unfamiliar, L-BTC is intended to function as a receipt, with each token on Liquid meant to be backed by one real Bitcoin held in reserve by the federation, the governing body of the network.
The issues began on September 6, 2026, when an attacker exploited a vulnerability in Elements, the software underpinning Liquid. This exploit enabled the creation of approximately 4,000 L-BTC without corresponding Bitcoin backing, effectively allowing for the minting of unbacked tokens.
Reserve Damage and Recovery Efforts
The exploit caused severe damage to the network’s reserves, with holdings plummeting from around 4,205 BTC to a mere 197 BTC. In a subsequent development, attackers returned 3,400 BTC after negotiations, recovering the majority of the stolen assets.
Despite this recovery, a deficit remained. Blockstream has committed to covering this remaining shortfall rather than passing the losses onto users. The company had previously stated that addressing the gap was a matter of “when, not if,” and Mow’s recent comments suggest a clearer timeline is now emerging.
Security Audit and Withdrawal Resumption
An external security audit was completed by October 20, 2026, leading to the implementation of specific recovery measures. However, users are not yet able to fully withdraw their Bitcoin from Liquid. The process of moving Bitcoin off Liquid and back to the main Bitcoin chain, known as a peg-out, has only partially resumed and is currently limited to third-party swap services. Direct peg-outs facilitated by the federation remain suspended.
These direct withdrawals will continue to be restricted until full 1:1 backing is re-established. The closure of the 600 BTC gap is a prerequisite for reactivating the primary withdrawal channel.
For L-BTC holders, the immediate implication is the ability to redeem their tokens. Once the federation achieves full backing, direct peg-outs are expected to resume, eliminating the reliance on intermediary swap services. Blockstream’s decision to absorb the remaining loss is noteworthy, as many protocols affected by hacks have distributed losses among their users.
