Liquid Network Restarts Block Production After $320M Exploit, Keeps Transactions and Peg Paused

Liquid Network has restarted block production following a large Bitcoin withdrawal linked to a vulnerability in Elements, the open-source software underlying the sidechain. In a Thursday post on X, Liquid said blocks are now being produced "without transactions" as a safety measure. Transaction processing and peg operations remain suspended while the team continues recovery work and monitoring to "confirm full stabilization." Liquid said required updates have been deployed across its functionary and bridge node infrastructure, and that functionary nodes are signing and validating blocks properly after the changes. Peg operations, including PAK-authorized pegouts, are still paused. Liquid said these will remain on hold until it restores its BTC/LBTC reserve. The restart follows an emergency Elements release, v23.3.4, which addressed a proof-verification cache weakness tied to the incident. Liquid said the patch focused on hardening cache keys used for range proofs. Liquid paused operations on Sept. 6 after actors describing themselves as "whitehat hackers" withdrew about 4,000 BTC (roughly $320 million at the time) from the network's federation wallet. The withdrawal represented around 95% of the wallet's roughly 4,200 BTC balance. The incident was linked to LBTC created via an Elements bug. After Blockstream confirmed affected bridge nodes had been patched, the actors returned 3,400 BTC (about $270 million at the time). As of Sept. 7, 598 BTC (around $46 million at current prices) was still outstanding, based on earlier reporting cited in Liquid's updates. Liquid has not provided a timeline for resuming transaction processing or pegouts. Near-term signals for users include whether the network confirms stabilization under live conditions and whether reserves are restored enough to safely lift the peg suspension.