Liquid Restores Full Bitcoin Backing After Elements Exploit

Liquid’s bitcoin reserves again cover all circulating L-$BTC after a 250 $BTC transfer on Nov. 2 closed the remaining reserve gap left by the Sept. 6 Elements exploit.

As of about 7:08 p.m. ET on Nov. 2, Mempool’s Liquid explorer data showed 4,268.95 $BTC in reserves against 4,268.95 L-$BTC in circulation. Dividing the unrounded reserve balance by supply gives 100.00% coverage, according to The Defiant’s calculation.

For authorized federation withdrawal operators, full backing meets a reserve prerequisite for restarting direct withdrawals under the federation’s Oct. 20 recovery plan. It does not, by itself, establish that withdrawal controls have been lifted.

The Liquid Federation announced Monday evening that reserves had been “fully restored, reestablishing 1:1 $BTC backing for all LBTC.” Liquid is a Bitcoin sidechain; its L-$BTC token is intended to represent bitcoin locked in federation reserves.

That compares with estimated coverage of 94.14% earlier on Nov. 2. The final transaction sent exactly 250 $BTC to an address listed in the federation wallet and was confirmed in Bitcoin block 974307.

In its incident assessment, Blockstream said the Sept. 6 exploit of Elements, the software underlying Liquid, created approximately 4,000 unbacked L-$BTC that was converted into bitcoin through peg-outs. It said 3,400 $BTC was returned on Sept. 7.

Swaps and Direct Withdrawals

Direct federation peg-outs withdraw $BTC from the network’s reserves and are available to authorized Peg-out Authorization Key holders. The recovery plan called for restoring full backing before their controlled reactivation.

Swapping through providers is a separate exit route. In its Oct. 27 update, the federation said users could exchange $BTC and L-$BTC at 1:1 through AQUA, Bull Bitcoin and SideSwap, while normal federation peg-out operations remained under “enhanced operational controls” as security hardening continued and an independent audit neared completion.

The Nov. 2 announcement confirms the reserves milestone but does not announce unrestricted direct peg-outs or completion of that audit. The recovery plan also makes restoration of normal peg-out functionality subject to completion of the remaining security and operational requirements.