The Liquid Network, a Bitcoin sidechain operated by Blockstream, has been paused after unidentified actors withdrew $320 million worth of bitcoin from the platform, a move that has forced exchanges to suspend deposits and withdrawals of LBTC, the network's pegged bitcoin token.
The scale of the withdrawal makes it one of the largest single incidents to hit Bitcoin's sidechain infrastructure. Liquid Network functions as a federated sidechain designed to allow faster and more confidential bitcoin transactions than the main Bitcoin blockchain, with LBTC serving as the token representing bitcoin locked into the system.
Blockstream said it is working to contact those responsible for the withdrawal, though the company has not disclosed further details on the nature of the incident or the identity of those who moved the funds.
Impact for European users
Exchanges that support LBTC have suspended deposits and withdrawals of the token as a precaution, a move that directly affects users across Europe holding balances on platforms that list the asset. With the network paused, holders of LBTC are currently unable to move funds in or out of supporting exchanges, leaving balances effectively frozen until the situation is resolved.
The suspension underscores the exposure that European exchange users face when platforms integrate sidechain assets built on federated trust models rather than the base Bitcoin protocol itself. Liquid Network's design relies on a group of functionaries who jointly control the pegged reserves, a structure distinct from Bitcoin's own decentralized consensus.
No timeline has been given for when the network might resume normal operations, nor has any indication been provided as to whether the withdrawn funds will be recovered or returned. Blockstream has not published a full account of how the withdrawal occurred.
The incident is likely to renew scrutiny of sidechain security models more broadly, particularly among exchanges and custodians in Europe that have integrated LBTC as a bitcoin-pegged asset within their product offerings. Until Blockstream provides further clarity, exchanges appear set to keep LBTC deposit and withdrawal functions frozen.
