LIQUID Network peg-out operations remain suspended 35 days after an exploit drained nearly 4,000 BTC from the layer two protocol. Users cannot redeem LBTC for actual bitcoin—a critical function offline for over a month.
The exploit occurred when self-described white hat hackers targeted a vulnerability in Liquid's Elements software. Attackers returned approximately 3,400 BTC by Sept. 7, 2026, but retained 598.5 BTC, worth roughly $49.69 million at current prices.
The attackers demanded a 10 percent bounty from Blockstream for identifying the vulnerability. Blockstream rejected the demand immediately and called for full restitution. The attacker's wallet still holds the 598.5 BTC and continues to show activity, with numerous address-poisoning attempts and OP_RETURN messages cluttering the chain.
For LBTC holders, the extended suspension has created a liquidity crisis. The Liquid Network now operates at 86 percent backing—meaning 14 percent of every holder's assets are unrecoverable until peg-outs resume.
Longtime Liquid supporters are losing patience. X user Sovereign Money criticized Blockstream's sparse and inconsistent communications, underscoring growing frustration with the company's handling of the situation.
On Sept. 29, 2026, Liquid confirmed peg-out operations were still down pending the results of an independent external security audit of Elements v23.3.4. The Liquid Federation is also coordinating an update to its Proposed Active Keyholders (PAK) list—replacing existing entries and moving all peg-out keys to cold storage, according to the network's social media account.
No timeline for resuming peg-outs has been announced. Some LBTC holders have resorted to workarounds using alternative applications to move funds off Liquid, effectively paying steep fees—what one user called the "Not your keys, not your coins" tax—to access their bitcoin.
