Liquid Network Initiates Audit to Restore Bitcoin Peg Outs

The Liquid Federation is currently replacing its Peg out Authorization Key (PAK) entries to ensure all keys involved in the withdrawal process are moved to cold storage. This move addresses a security gap identified during the Sept. 6 incident, where an attacker exploited a consensus vulnerability in the Elements software to generate unbacked LBTC and subsequently drained Bitcoin reserves through a member’s authorization system.

While block production and standard transactions resumed shortly after the incident, peg outs remain offline as a final safety measure. The audit of Elements v23.3.4 serves as a validation of the patch released on Sept. 9, which corrected the rangeproof verification flaw that allowed for the unauthorized creation of assets. Although 3,400 BTC have been returned by the actors behind the exploit, approximately 602 BTC remain missing. Blockstream, the primary developer behind the platform, has opted to pursue the remaining funds via law enforcement and forensic specialists rather than meeting bounty demands. The federation has not yet announced a firm timeline for the resumption of withdrawals, pending the completion of these security measures.