wiz 🇸🇻

Bitcoiner. Founder/CEO of Wiz & Associates and Mempool Holdings, together operating critical infrastructure for the community

[wiz 🇸🇻 @wiz]

My talk at #Bitcoin2024 launching Mempool Accelerator™ https://t.co/5EQ1toUhU1

[Adam Back @adam3us]

@liquid_btc network resumption coming up.
obvious question will LBTC:BTC 1:1 peg be covered; answer YES, so do not panic sell OTC as @PabloSGreco and team are working on more system updates to resume the peg in/out, which happens in a later step. https://t.co/eQAVbQKNi3

[wiz 🇸🇻 @wiz]

@ocean_mining @giacomozucco congratulations on this, seriously

[Liquid Network 🌊 @Liquid_BTC]

LIQUID NETWORK UPDATE: INCIDENT REPORT
Status as of September 8, 2026, 19:10 UTC

What Happened?

On September 6, 2026 at 15:53:10 UTC (Liquid block 4,050,336), a vulnerability in the open-source Elements software related to how Liquid nodes cache range proof verifications was exploited, resulting in the creation of ~4,000 LBTC that were not backed by bitcoin held in reserve.

The individual(s) responsible for the exploit then used the SideSwap service, a Liquid Federation member that holds a peg-out authorization (PAK) key, to convert the unbacked LBTC to BTC via Liquid’s standard peg-out mechanism. Because the validation failure occurred at the transaction level before the peg-out was initiated, both SideSwap’s node and the Liquid Network’s globally distributed functionary nodes accepted the LBTC as valid. The functionaries processed the peg-out as authorized, releasing approximately 4,000 BTC through SideSwap’s whitelisted bitcoin address, which SideSwap then forwarded to the address specified by the exploiters. Before the incident, the Liquid reserve held approximately 4,205 BTC. Following this peg-out and additional peg-outs processed before operations were halted, the reserve balance fell to 197 BTC.

Key Clarifications

No keys were compromised. The Liquid Federation functionaries were not hacked, and no private keys were compromised. The peg-out mechanism that authorizes withdrawals to whitelisted addresses operated as designed.

Other Liquid-issued assets were not affected. USDT and other tokens issued on the Liquid Network were not impacted by the vulnerability, though they are temporarily unavailable while the network remains paused.

Investigation is ongoing. As is common in complex critical-system failure investigations, this incident arose from the convergence of several individually low-probability factors that interacted in ways that ultimately defeated the system's built-in redundancies. More detail will be shared in forthcoming communications.

What Steps Have Been Taken To Recover The Assets?

The individual(s) responsible for the exploit left a public message on the bitcoin mainchain identifying themselves as white-hat security researchers and requesting contact to address the vulnerability.

Patch deployed. Blockstream identified and deployed a patch to the Liquid Network’s bridge nodes, which was completed on September 7 at 01:09 UTC, ensuring the vulnerability is no longer exploitable.

Partial fund recovery. On September 7 at 16:09:25 UTC (Liquid block 965,950), the exploiters returned 3,400 BTC to the Liquid Federation peg wallet. Approximately 598.5 BTC (15% of the total) remains outstanding. Discussions between Blockstream and the individuals responsible are ongoing to secure the return of the remaining funds.

What Comes Next?

Our immediate priorities are recovering the remaining funds and resuming normal network operations safely and as quickly as possible.

Software update in progress. A fix for the exploited vulnerability has been developed and is undergoing multiple rounds of internal and external review. Blockstream is preparing an emergency release of Elements (v23.3.4), which is expected to be released as soon as possible, but within approximately 48 hours.

Network restoration. Once the software update is finalized, Liquid Network functionary operators will perform additional adjustments to resume full functionality and restore the corrected network state, including rejection of the invalid peg-out.

Ongoing updates. We will continue to provide detailed updates as the situation progresses.

What You Should Know

The Liquid Network remains offline at this time, while we work on reviewing the security fixes and network resumption code and coordinate with the white hat hacker towards timely resumption of the network with 1:1 backing for BTC. While the network is paused, users cannot transact on Liquid. If you operate a Liquid node, please watch for the emergency Elements release and follow the upgrade instructions when available. Users do not need to take any proactive steps to protect their funds at this time.

The Liquid Federation and its members are committed to resolving this incident in coordination with Blockstream and to resuming normal operations as soon as it is safe to do so.

[wiz 🇸🇻 @wiz]

@notgrubles @mempool lol, we've always had the audit meter on the https://t.co/Yvy5QWeByx dashboard, but i guess nobody noticed until now

[wiz 🇸🇻 @wiz]

@BitcoinAustrian @stephanlivera @6102bitcoin One of the best examples of a BTC denominated IOU trading at a discount was when mtgox suspended withdrawals and people started trading GOXBTC for BTC, another more recent one was the Bitfinex hack where they issued debt tokens and eventually redeemed 100% of the debt token IOUs.

[Rob Hamilton 🟥 @Rob1Ham]

Entering Day 39

[wiz 🇸🇻 @wiz]

@TheBlueMatt @OrangeSurfBTC sure, but then they apparently introduced a new bug while fixing the previous one, so either they didn’t review the fix enough or they didn’t take it seriously enough, can only speculate on the “why” from what i saw as an outsider until we see their post mortum

[wiz 🇸🇻 @wiz]

@giacomozucco @anitaonl @callebtc yeah, it needs to be enforced using technical means somehow. i am sure @adam3us will have some ideas for this

[wiz 🇸🇻 @wiz]

@OrangeSurfBTC The entire point of becoming a trusted member of the Liquid Network is being able to peg-out. If Sideswap broke this strict security policy, whereby members are only allowed to peg-out to offline cold storage, they are partly responsible for the theft

[wiz 🇸🇻 @wiz]

@OrangeSurfBTC The entire point of becoming a trusted member of the Liquid Network is being able to peg-out. If Sideswap broke this strict security policy, whereby members are only allowed to peg-out to offline cold storage, they are partly responsible for the theft

[wiz 🇸🇻 @wiz]

my understanding is that blockstream only thought it was a lower severity consensus split bug, so they didn’t give it the attention it deserved (or do things like immediately halt the liquid network), and apparently the patch was also incorrect or insufficient, so when they pushed their ‘fix’ to github someone must have saw the commit and realized it was possible to mint L-BTC by abusing the cache collision using faulty cache keys and they somehow seeded the cache with legit transactions (which is why our https://t.co/Pxt5mJ7oZc node rejected the bogus TX, our cache wasn’t seeded to accept them), and then they simply swapped that LBTC on sideswap for BTC because sideswap violated the official PAK “only allow peg-outs to cold storage” policy essentially letting anyone withdraw directly from the federation holdings

[stu 🥪🥞 @stutxo]

here are the transactions that caused the liquid consensus split and inflation bug, prior to the peg-out

1. two valid setup txs primed the rangeproof cache:
https://t.co/QgyasXRW62
https://t.co/CPeysNdLjw

2. follow-up tx carried a garbage 4234-byte "proof" with an identical cache key that forked the network at block 4050336 and created 3,996.0183 L-BTC

https://t.co/d06HSEhmqv

they later then pegged out va sideswap

you are only allowed to peg out if ur on the whitelist but i think sideswap just let anyone add their key or something 🫠

[Farside Insights @FarsideInsights]

@wiz This transaction appears to be the problem:

https://t.co/xlfptSXpxd

"Failed to broadcast transaction, reason: bad-txns-in-ne-out, value in != value out" does not seem good

The others were fine

[wiz 🇸🇻 @wiz]

@FarsideInsights You could just try broadcasting them to https://t.co/Yvy5QWeByx web interface and see if they go into my mempool ?

[wiz 🇸🇻 @wiz]

2026-09-06T13:52:11Z UpdateTip: new best=aad24e4fb64ca8adf4961667da87820cd48e553957ac64e75de7cdb298b5d66b height=4050335 version=0x20000000 log2_work=21.949610 tx=10343053 date='2026-09-06T13:52:10Z' progress=1.000000 cache=1.4MiB(3105txo)
2026-09-06T13:53:11Z ERROR: ConnectBlock: CheckQueue failed
2026-09-06T13:53:11Z InvalidChainFound: invalid block=e1d9a2aae69e0fc3ca18f7f7f84e0615e92a5e3b5000d66c10c34043346da0d5 height=4050336 date=2026-09-06T13:53:10Z
2026-09-06T13:53:11Z InvalidChainFound: current best=aad24e4fb64ca8adf4961667da87820cd48e553957ac64e75de7cdb298b5d66b height=4050335 date=2026-09-06T13:52:10Z
2026-09-06T13:53:11Z ERROR: ConnectTip: ConnectBlock e1d9a2aae69e0fc3ca18f7f7f84e0615e92a5e3b5000d66c10c34043346da0d5 failed, block-validation-failed
2026-09-06T13:53:11Z InvalidChainFound: invalid block=e1d9a2aae69e0fc3ca18f7f7f84e0615e92a5e3b5000d66c10c34043346da0d5 height=4050336 date=2026-09-06T13:53:10Z
2026-09-06T13:53:11Z InvalidChainFound: current best=aad24e4fb64ca8adf4961667da87820cd48e553957ac64e75de7cdb298b5d66b height=4050335 date=2026-09-06T13:52:10Z

[Rob Hamilton 🟥 @Rob1Ham]

Looks like there is a confirmed network split on the liquid network based on the version of Elements you ran.

[wiz 🇸🇻 @wiz]

@FarsideInsights Yeah, my https://t.co/Yvy5QWeByx nodes are running a different version of elements than https://t.co/lfTHnUVO9u, which is related to the consensus split: seems this is the “valid” transaction which caused the consensus split, which obviously should not have been allowed

[bitcoin++ Insider Edition @btcinsider__]

It appears that the hackers created a valid 6-input confidential @Liquid_BTC transaction that registered as a valid 3,998 bitcoin peg-out transaction, which the HSM functionaries then signed as a valid move of bitcoin onto the chain. The hackers have stated they are whitehats

[wiz 🇸🇻 @wiz]

@stevenroose3 @mempool That’s the problem, it shouldn’t have been valid, but due to a bug, it was…