The Liquid Network is on the verge of restoring its Bitcoin reserves following a significant security incident. According to Samson Mow, CEO of JAN3, the sidechain’s remaining deficit of 600 BTC is expected to be fully covered within days.

Recent Developments

On October 27, 2026, a test transaction involving 2.53048101 BTC was executed and successfully landed in the Liquid federation wallet. Such test transfers are crucial for custodians, as they verify the operational integrity of the network before larger transactions take place.

As a result of this deposit, the federation wallet’s balance stands at approximately 3,649 BTC, while 4,249 L-BTC—tokens designed to represent Bitcoin on Liquid—are currently in circulation. This gives an 85.88% coverage ratio but still leaves a gap of around 600 BTC.

Understanding L-BTC

For those unfamiliar, L-BTC serves as a receipt on the Liquid Network, with each token correlating to one Bitcoin held securely by the federation, which oversees the reserve management.

Security Incident Background

The issues began on September 6, 2026, when a flaw in the Elements software, the backbone of the Liquid Network, was exploited. This security vulnerability enabled an attacker to generate approximately 4,000 L-BTC without any Bitcoin backing them, effectively creating false receipts.

The consequences were severe, causing the reserves to plunge from about 4,205 BTC to just 197 BTC. However, in an unexpected turn of events, following negotiations, the attackers returned 3,400 BTC, leading to a significant recovery of funds.

Commitment to Restoration

Blockstream, the company managing the Liquid Network, has committed to covering the remaining shortfall of 600 BTC instead of passing losses onto users. Mow indicated that the question of restoration is not if but when, with a timeline now being established.

Following the incident, an external security audit was completed by October 20, 2026, leading to the implementation of additional recovery measures.

Peg-Out Status

While progress is being made, users still face limitations regarding Bitcoin transfers off the Liquid Network—referred to as peg-outs. Currently, this process has only partially resumed through third-party swap services. The federation has paused direct peg-outs until a full 1:1 backing of Bitcoin is reinstated.

Completing the remaining 600 BTC is essential for enabling direct withdrawals, allowing L-BTC holders to redeem their tokens without relying on third-party services.

The Importance of Restoration

Blockstream’s decision to absorb the losses carries significant weight. Unlike many compromised protocols that distribute losses across their user base, leading to diminished holdings for all participants, Blockstream aims to restore the network to its previous stability without negatively impacting individual users.