The Liquid Network has paused its Bitcoin sidechain after approximately 4,000 BTC—worth roughly $320 million at the value cited in reports—was withdrawn from its Federation wallet. The reported incident has placed a substantial amount of Bitcoin held within the network's Federation wallet at the center of a security investigation, and Liquid has said the sidechain will remain paused while the issue is investigated and resolved.

Liquid Network Reports $320 Million Bitcoin Withdrawal

According to a Cointelegraph post, Liquid Network stated that about 4,000 BTC was withdrawn from its Federation wallet. At the valuation cited in the report, the Bitcoin was worth approximately $320 million.

The funds were reportedly taken by purported white-hat hackers. The term generally refers to security researchers or other actors who identify vulnerabilities or intervene in security incidents with the stated aim of preventing further harm, although the characterization in this case remains attributed to the information reported by Cointelegraph.

The reported withdrawal involves Bitcoin held in a Federation wallet associated with Liquid, rather than a withdrawal from Bitcoin's broader network.

Liquid Sidechain Paused During Investigation

Following the reported incident, Liquid has paused its sidechain. The suspension is intended to keep activity on the network halted while the issue is addressed.

A sidechain is a blockchain network connected to another blockchain, allowing assets and transactions to operate under a separate set of rules while maintaining a relationship with the primary network. Liquid operates as a Bitcoin sidechain. The pause means activity on Liquid is temporarily restricted while the reported wallet incident remains unresolved.

The pause affects users of the network, who cannot move assets while the sidechain is halted. Liquid, which launched in 2018 and was developed by Blockstream, is used by exchanges, brokers, and other institutions for faster settlement and confidential transfers of Bitcoin-pegged assets. Because the incident concerns a Federation wallet, the implications extend to participants relying on the network's peg mechanism rather than to holders of Bitcoin on the main chain.

Cointelegraph's report did not provide additional details about the specific mechanism used to withdraw the 4,000 BTC or the identity of the parties involved.

Security Incident Puts Federation Wallet in Focus

The reported movement of approximately 4,000 BTC places the security of Liquid's Federation wallet at the center of the incident.

Liquid uses a federation-based model to manage assets moving between the Bitcoin network and the Liquid sidechain. In this model, a group of geographically distributed functionaries collectively manages the network's hardware and keys, and a majority of them must act together to perform sensitive operations such as moving pegged funds. Because the reported withdrawal concerns funds held in a Federation wallet, the incident is specific to Liquid's infrastructure and, based on the information provided, should not be interpreted as a compromise of Bitcoin's underlying blockchain.

That distinction is important when assessing the scope of the reported event. The source identifies the affected funds as Bitcoin associated with Liquid's Federation wallet, while the Liquid sidechain itself has been paused pending resolution.

For now, the key outstanding issues are the investigation into how the approximately 4,000 BTC was withdrawn, the circumstances surrounding the purported white-hat hackers, and whether the network's federation functionaries will restore full operation and access for users. Liquid's sidechain remains paused until the reported issue is resolved.