Attackers Return 3,400 of 4,000 Bitcoin Taken From Blockstream's Liquid Sidechain and Keep 598.5

A group that drained roughly 4,000 bitcoin from the federation wallet backing Blockstream's Liquid sidechain has returned 3,400 of those coins after negotiations conducted through on-chain messages and encrypted channels. About 598.5 bitcoin, near $47 million at current prices, remains with the attackers. Blockstream said it patched the affected bridge nodes before the return took place.

Liquid is a Bitcoin sidechain whose L-BTC token is backed one-for-one by bitcoin held in a wallet controlled by a federation of exchanges and companies. Reporting on the incident attributes the entry point to a defect in the network's range proofs, the cryptographic proofs that confirm a hidden transaction amount falls inside a valid range without revealing it. Liquid uses confidential transactions, so amounts are not published, and a soundness defect in that verification process lets an attacker assert value that does not exist rather than steal a key. CoinDesk put the initial drain at about $320 million when the coins moved on Sunday.

The parties disagree about what happened next. The attackers described themselves as white hats, meaning security researchers acting to protect a system rather than to profit from it, and framed the retained coins as a bounty. Security practitioners including Ledger's chief technology officer rejected that description, noting that the funds moved first and the offer to talk followed. Blockstream has not published a full post-mortem or named the individuals involved. Both readings fit the on-chain record, and what separates them is evidence that has not been made public: whether the group attempted disclosure before moving funds.

The scale matters against the size of the Bitcoin-native application layer. DeFiLlama puts total value locked across Bitcoin-based protocols at $4.25 billion, so a single federation wallet held bitcoin worth close to eight percent of that figure. The failure was not a smart-contract bug in the ordinary sense. It existed within the proof system that lets a chain hide amounts while still enforcing conservation of supply, a component that validator re-execution cannot independently check.