Liquid Network Bitcoin Sidechain Exploit — $320M Drained, $47M Still Withheld

On September 6, 2026 at 13:53:10 UTC (Liquid block 4,050,336), an attacker exploited a range-proof cache-key collision bug in Elements, the open-source software underlying the Liquid Network, minting roughly 4,000 unbacked L-BTC. The tokens were pegged out through SideSwap's whitelisted service, and at 14:28:56 UTC the federation's 11-of-15 multisig paid out approximately 3,996 BTC (~$320M) to the attacker's wallet — every signing key functioned exactly as designed. Hours later the attacker wrote 'we are whitehats. contact us on chain' into a Bitcoin OP_RETURN field. Blockstream replied via PGP-signed messages in the same channel. After confirming bridge nodes were patched (Elements v23.3.4, released Sept 9), the attacker returned 3,400 BTC (85%) on September 7 at 16:09 UTC, keeping 598.5 BTC as an unagreed 'bounty'. On September 9 the attacker escalated, demanding Blockstream pay an additional 10% bug bounty from its own funds and threatening to publish a decryption key for the earlier encrypted negotiation channel — a threat not carried out as of September 17. Liquid resumed block production on September 10 but peg-out operations (L-BTC to BTC redemption) remained suspended 11 days later. Two hijack attempts — unsigned messages impersonating Blockstream and directing funds to alternate addresses — were identified and failed. Blockstream has stated it will not pay a ransom for the withheld funds and is working with law enforcement and blockchain investigators to trace them.