On September 7 (Coordinated Universal Time, or UTC), 3,400 of the approximately 4,000 bitcoin that had been drained from Liquid the previous day were returned to the wallet of the Liquid Federation, which operates the network. The return transaction was confirmed on the Bitcoin blockchain, and approximately 598.5 BTC remained at the sending address in that transaction.
Liquid is a separate blockchain network connected to the Bitcoin network, created to process bitcoin-related transfers and trades more quickly. Users can deposit bitcoin and receive a corresponding token, L-BTC, for use within Liquid. The Liquid Federation, whose participants include exchanges and financial companies, holds the bitcoin collateral, and L-BTC is designed to be exchanged for that bitcoin on a one-to-one basis. Ordinary users must go through an authorized participant in the federation to redeem L-BTC for bitcoin.
The Block, citing SideSwap, a Liquid-based trading service, reported that the L-BTC used in the withdrawal was created by a bug in Elements, the software underlying Liquid. According to that explanation, tokens created without an actual bitcoin deposit passed through the redemption process, causing approximately 4,000 bitcoin held as collateral by the federation to be paid to an external address.
Following the incident, activity on the Liquid network and related deposits and withdrawals were halted. The party that took the funds left a message on the blockchain stating that it would return them once the bug fix and the patching of all nodes had been confirmed. On September 7, developer Blockstream posted a digitally signed message confirming that patches had been applied to bridge nodes, which relay external nodes' connections to the network. The return of 3,400 BTC followed.
The recovery measures confirmed so far are patches to the bridge nodes and the return of part of the funds that were drained. It has not been confirmed whether the full network has resumed normal operation or whether L-BTC-to-bitcoin redemptions have resumed. The public materials reviewed also do not establish a schedule for returning the remaining funds or a plan for addressing the losses.