{"version":1,"id":"liquid-network","title":"Liquid Network","summary":"Liquid Network is a Layer2 that provides fast, confidential settlement and issuance of digital assets on top of the Bitcoin blockchain.","content":"**Liquid Network** is a [Bitcoin](https://iq.wiki/wiki/bitcoin) sidechain and [layer-2](https://iq.wiki/wiki/layer-2) settlement network that issues [digital assets](https://iq.wiki/wiki/digital-assets) and enables faster, confidential transfers on top of the Bitcoin [blockchain](https://iq.wiki/wiki/blockchain). It was launched in 2018 by [Blockstream](https://iq.wiki/wiki/blockstream), which continues to serve as the network's technology provider.[\\[1\\]](#cite-id-a7to1kxt3o)​[\\[2\\]](#cite-id-6r8qjgxxvb) \n\nThe network is designed to address the slow settlement speed of the Bitcoin blockchain for exchanges by locking bitcoin in reserve and issuing a corresponding asset, L-BTC, that can settle trades more quickly.[\\[1\\]](#cite-id-a7to1kxt3o) It presents itself as \"The Financial Layer for Bitcoin Capital Markets.\"[\\[3\\]](#cite-id-4rzyhh2ium)​\n\nLiquid is overseen by a federation of more than 80 exchanges, infrastructure firms and asset managers, and supports the issuance of a range of digital assets including [stablecoins](https://iq.wiki/wiki/stablecoin), security tokens and other financial instruments. The network reports a total value locked of approximately $5 billion. [\\[1\\]](#cite-id-a7to1kxt3o) [\\[2\\]](#cite-id-6r8qjgxxvb) [\\[3\\]](#cite-id-4rzyhh2ium)​\n\n## Overview\n\nLiquid Network functions as a companion chain to [Bitcoin](https://iq.wiki/wiki/bitcoin) rather than a replacement for it. Bitcoin is locked in reserve, and the network issues L-BTC against those reserves, allowing trades and transfers to settle faster than they would on the base Bitcoin blockchain.[\\[1\\]](#cite-id-a7to1kxt3o) \n\nThe network is categorized as both infrastructure and layer-2, and it supports fast, confidential settlement alongside the issuance of digital assets.[\\[2\\]](#cite-id-6r8qjgxxvb)​\n\nThe network reports an average fee rate of 0.1 satoshis per virtual byte (sat/vB), a low-cost profile intended to make frequent settlement and asset transfers economical for institutional users.[\\[3\\]](#cite-id-4rzyhh2ium)​\n\n Movement of value between Bitcoin and Liquid occurs through a two-way peg, in which users lock bitcoin to receive L-BTC (a \"peg-in\") and later redeem L-BTC for bitcoin (a \"peg-out\").\n\n## September 2026 Exploit\n\nOn 7 September 2026, Liquid Network paused operations after actors claiming to be white-hat hackers withdrew roughly 4,000 bitcoin, valued at about $320 million, from the federation wallet.[\\[5\\]](#cite-id-aflxi532aj)​[\\[1\\]](#cite-id-a7to1kxt3o) \n\nThe amount represented approximately 95% of the federation wallet's balance, which had held about 4,200 BTC before the incident.[\\[5\\]](#cite-id-aflxi532aj)​\n\n​[Blockstream](https://iq.wiki/wiki/blockstream) attributed the incident to a software bug in Elements rather than to compromised passwords or private keys, stating that the bug had created some of the bitcoin involved.[\\[1\\]](#cite-id-a7to1kxt3o) \n\nSecurity specialists quoted at the time identified the flaw as residing at the [node](https://iq.wiki/wiki/node) level in Liquid's transaction software rather than as a breach of keys or hardware security modules.[\\[1\\]](#cite-id-a7to1kxt3o) \n\nThe stolen funds moved out through SideSwap, described as a normal and approved trading platform on Liquid. SideSwap said the withdrawal passed through its peg-out service as a customer order using its PAK, that the key was not compromised, and that the L-BTC originated from a bug in Elements rather than from SideSwap's own systems. Because SideSwap could not distinguish which coins came from the Elements bug and which were genuine, it treated all coins the same.[\\[5\\]](#cite-id-aflxi532aj)​[\\[1\\]](#cite-id-a7to1kxt3o)​\n\nIn response, bridge nodes on Liquid were disabled to prevent new transactions, and exchanges had halted or were preparing to halt L-BTC deposits and withdrawals while the sidechain remained paused and federation members worked to fix the vulnerability.[\\[5\\]](#cite-id-aflxi532aj) \n\nLiquid stated on X that _\"Liquid wallets will be impacted, and we're sorry for any inconvenience,\"_ adding that _\"Federation members are actively working on resolving this so we can restore normal network activity.\"_[\\[1\\]](#cite-id-a7to1kxt3o) Liquid said that other assets issued on the network, including USDT, DePix and real-world assets, were unaffected.[\\[5\\]](#cite-id-aflxi532aj)​[\\[1\\]](#cite-id-a7to1kxt3o)​\n\nThe actors communicated with network maintainers through signed on-chain [Bitcoin](https://iq.wiki/wiki/bitcoin) transactions, promising to return most of the funds once the vulnerability was fixed. In one reproduced on-chain message they wrote: \"Please fix the bug first. The chain is under risk at latest commit right now. Make sure every node is patched. Then we will transfer the money back safely after confirming the fix.\"[\\[1\\]](#cite-id-a7to1kxt3o) \n\nBlockstream began contacting the actors through signed on-chain messages, and the actors told Blockstream to patch the Elements vulnerability and ensure every node was updated before returning the bitcoin.[\\[5\\]](#cite-id-aflxi532aj) \n\nThe actors reportedly sent encrypted technical details to Blockstream, a detail attributed to [Alex Thorn](https://iq.wiki/wiki/alex-thorn), head of research at [Galaxy Digital](https://iq.wiki/wiki/galaxy-digital).[\\[5\\]](#cite-id-aflxi532aj) \n\nAs of the reporting on 7 September 2026, the funds had not been returned, and Liquid had not said when the network would reopen or whether the bitcoin would be recovered.[\\[5\\]](#cite-id-aflxi532aj)​[\\[1\\]](#cite-id-a7to1kxt3o)​\n\n## Elements and Technology\n\nLiquid runs on Elements, an open-source [blockchain](https://iq.wiki/wiki/blockchain) platform maintained in the ElementsProject/elements repository on GitHub. The repository was created on 8 June 2015 and describes Elements as an \"open source, sidechain-capable blockchain platform\" and as \"the integration and staging tree for the Elements blockchain platform, a collection of feature experiments and extensions to the [Bitcoin](https://iq.wiki/wiki/bitcoin) protocol.\"[\\[4\\]](#cite-id-7x49sqz12n) Elements is written primarily in C++, with substantial portions in C and Python, and is released under the MIT License.[\\[4\\]](#cite-id-7x49sqz12n)​\n\nElements enables anyone to build businesses or networks pegged to Bitcoin as a sidechain, or to run a standalone blockchain with arbitrary asset tokens.[\\[4\\]](#cite-id-7x49sqz12n) \n\nThe software supports multiple operating modes selected by command-line arguments: Liquid mode, which syncs with the Liquid network, is run with `elementsd -chain=liquidv1`. It also supports Bitcoin [mainnet](https://iq.wiki/wiki/mainnet) (`-chain=main`, not intended for commerce), Bitcoin [testnet](https://iq.wiki/wiki/testnet) (`-chain=testnet3`), Bitcoin regtest (`-chain=regtest`), and custom Elements chains through any other `-chain=` argument, which start with regtest-like default parameters that can be overridden at startup.[\\[4\\]](#cite-id-7x49sqz12n)​\n\n### Features\n\nElements extends the [Bitcoin](https://iq.wiki/wiki/bitcoin) protocol with several features not present in Bitcoin itself:\n\n* Confidential Assets, the ability to issue multiple assets on a [blockchain](https://iq.wiki/wiki/blockchain) where asset identifiers and amounts are blinded yet remain auditable through applied cryptography.[\\[4\\]](#cite-id-7x49sqz12n)\n* Confidential Transactions, which conceal transaction amounts.\n* Federated Two-Way Peg, the mechanism by which value moves between Bitcoin and the sidechain.\n* Signed Blocks, a block-production model relying on designated signers rather than open [mining](https://iq.wiki/wiki/mining).\n* Additional opcodes beyond those available in Bitcoin.[\\[4\\]](#cite-id-7x49sqz12n)\n\nA Confidential Assets [whitepaper](https://iq.wiki/wiki/white-paper) was presented on 7 April 2017 at Financial Cryptography 2017 in Malta, accompanied by an announcement, a tutorial and a demonstration.[\\[4\\]](#cite-id-7x49sqz12n) \n\nSome features first developed in Elements were later integrated into Bitcoin itself, including Segregated Witness and Relative Lock Time, while Schnorr Signatures were deferred for additional research and standardization.[\\[4\\]](#cite-id-7x49sqz12n)​\n\n## Assets and Use Cases\n\nLiquid is used to issue and settle a range of financial instruments, and the network reports a cross-section of [digital assets](https://iq.wiki/wiki/digital-assets) held on it. \n\nAmong the largest reported holdings are $2.1 billion in Mifiel promissory notes and $877 million in BMN2, alongside $97 million in the Tether stablecoin ([USDT](https://iq.wiki/wiki/tether)), $32 million in USTBL, $15 million in the Aquarius Fund, $7.4 million in CMSTR and $7 million in MEXAS.[\\[3\\]](#cite-id-4rzyhh2ium) \n\nThese holdings reflect Liquid's positioning around stablecoins, [tokenized securities](https://iq.wiki/wiki/tokenized-securities) and real-world assets.[\\[2\\]](#cite-id-6r8qjgxxvb)​\n\n## Federation and Governance\n\nLiquid is governed by a federation of more than 80 members, comprising exchanges, infrastructure firms and asset managers.[\\[1\\]](#cite-id-a7to1kxt3o) \n\nThe federation collectively administers the two-way peg and produces the network's signed [blocks](https://iq.wiki/wiki/block), and its members hold the bitcoin reserves that back L-BTC in a federation wallet. During disruptions, federation members are responsible for restoring normal network activity.[\\[1\\]](#cite-id-a7to1kxt3o)​\n\nPeg-outs from Liquid can be executed through approved trading platforms on the network. SideSwap, one such platform, uses a Peg-out Authorization Key (PAK) to process peg-out orders as customer transactions.[\\[5\\]](#cite-id-aflxi532aj)​\n","categories":[{"id":"projects-and-protocols","title":"projects-and-protocols"}],"tags":[{"id":"Layer2"},{"id":"Infrastructure"},{"id":"Privacy"},{"id":"Bridge"},{"id":"RWA"}],"images":[{"id":"QmSqHfPE4ZHNMdsQHgM6zuc2ZHa248L2QCXdq2VcRCFDko","type":"image/jpeg, image/png"}],"media":[],"metadata":[{"id":"references","value":"[{\"id\":\"a7to1kxt3o\",\"url\":\"https://www.coindesk.com/markets/2026/09/07/bitcoin-network-used-by-exchanges-hit-by-usd320-million-exploit-hackers-claim-they-re-the-good-guys\",\"description\":\"CoinDesk on Liquid's 2018 launch by Blockstream\",\"timestamp\":1788783981965},{\"id\":\"6r8qjgxxvb\",\"url\":\"https://www.rootdata.com/projects/detail/Liquid%20Network?k=NzI4MA%3D%3D\",\"description\":\"RootData describing Liquid as Bitcoin layer-2\",\"timestamp\":1788783981965},{\"id\":\"4rzyhh2ium\",\"url\":\"https://liquid.net/\",\"description\":\"Liquid Network self-description\",\"timestamp\":1788783981965},{\"id\":\"7x49sqz12n\",\"url\":\"https://github.com/elementsProject/elements\",\"description\":\"Elements repository description and creation date\",\"timestamp\":1788783981965},{\"id\":\"aflxi532aj\",\"url\":\"https://cointelegraph.com/news/liquid-network-pauses-320m-bitcoin-withdrawal\",\"description\":\"Cointelegraph on SideSwap's peg-out service and PAK\",\"timestamp\":1788783981965}]"},{"id":"rootdata_profile","value":"https://www.rootdata.com/Projects/detail/Liquid Network?k=NzI4MA=="},{"id":"website","value":"https://liquid.net/"},{"id":"twitter_profile","value":"https://x.com/Liquid_BTC"},{"id":"telegram_profile","value":"https://t.me/liquid_community"},{"id":"github_profile","value":"https://github.com/elementsProject/elements"},{"id":"reddit_profile","value":"https://www.reddit.com/r/liquidnetwork/"},{"id":"youtube_profile","value":"https://www.youtube.com/liquidnetwork"},{"id":"commit-message","value":"Create Liquid Network wiki"}],"events":[{"type":"DEFAULT","title":"Federation wallet drained and network paused","date":"2026-09-01","description":"Federation wallet drained and network paused after Elements vulnerability exploit.","link":null,"multiDateStart":null,"multiDateEnd":null,"id":"7256cbc5-59b0-4e41-bb36-31cdbb4b4ecb"}],"linkedWikis":{"founders":["blockstream"],"blockchains":["bitcoin"],"speakers":[]},"user":{"id":"0x8af7a19a26d8fbc48defb35aefb15ec8c407f889"},"author":{"id":"0x212Cb3F4aE6611054637f9f78F18fB628AD258bb"},"language":"en","operator":{"id":"0x212Cb3F4aE6611054637f9f78F18fB628AD258bb"}}