Liquid Swaps Are Back. Peg-Outs Are Not

On October 20, 2026, the Liquid Federation told Liquid Network users that bitcoin swaps were working again. Six weeks earlier, roughly 4,000 bitcoin had left the network's shared reserve in a few hours. Most of it came back. Not all of it did. So a holder can once again trade L-BTC for real bitcoin through a swap provider, but Liquid Network's bitcoin redemption through the federation itself, the peg-out, is still frozen. Six questions cover what a holder needs to know.

What actually happened to Liquid Network's bitcoin?

Liquid is a Bitcoin sidechain. A federation of organizations, called functionaries, jointly holds the real bitcoin that backs a token called L-BTC and signs any withdrawal of that bitcoin back to the main chain. On September 6, 2026, at Liquid block 4,050,336, a bug in Elements, the open-source software the sidechain runs on, let a single transaction create L-BTC that was not backed by anything. The flaw sat in how nodes cached a cryptographic check called range proof verification: a new proof could match an earlier, legitimately verified cache entry and skip the real check. Whoever found it moved roughly 4,000 unbacked L-BTC out through Liquid's normal withdrawal process, via a federation member holding a peg-out authorization key, the same path legitimate holders use. By the time the network halted, the shared reserve had gone from about 4,205 BTC to roughly 197 BTC.

Why is Liquid Network's bitcoin redemption still frozen?

Because the reserve is not whole again, and the federation has said it will not reopen direct peg-outs until it is. On October 11 the public explorer put the reserve at about 85.8% of the L-BTC in circulation, a shortfall of roughly 602 BTC. The Liquid Federation's October 20 update describes a staged recovery. Updated federation software is now running on enough functionaries, and semi-automated BTC to L-BTC swaps are being enabled with participating swap providers, with no protocol-imposed volume limit. For most users that restores a practical way to turn L-BTC into BTC. Federation peg-outs are a separate switch, and it stays off until the backing is back to one-to-one. Bitcoin Magazine reported that the recovery had entered its final stages, with full reserve restoration and remaining security requirements still ahead of a controlled reopening of peg-outs for the authorized key holders.

Didn't the attacker give most of it back?

Mostly, yes. About 3,400 of the roughly 4,000 BTC came back on September 7, a day after it left, after messages written into Bitcoin transactions in which the senders called themselves white hats. Whoever took it kept close to 600 BTC and framed it as a bounty nobody had offered. Blockstream and outside security researchers have publicly rejected that framing, since finding a bug and quietly draining a shared reserve through it is not responsible disclosure. Every signature on the withdrawal was genuine. The functionaries did exactly what the software told them to do, because the software believed the tokens were real.

What does "85.8% backed" actually mean for someone holding L-BTC?

It means that if every L-BTC holder tried to redeem with the federation today, there would not be enough bitcoin in the reserve to pay all of them. Roughly 602 missing bitcoin against the about 4,235 BTC needed to back everything in circulation is close to the 600 BTC the attacker kept, which is why the federation describes the next step as restoring full backing before touching the peg-out switch at all. The October 20 update does not change that math. Swaps run through participating providers, not through the federation's own peg-out, so they can work while the reserve is still short. They answer the question "can I get out today?", not the question "is everything I hold fully backed?"

What does a federation's bitcoin have to do with a mining pool?

Liquid's model depends on trusting a group of organizations to jointly hold real bitcoin on everyone's behalf, and on the software that tracks what is owed matching reality. When that software had a bug, there was a pooled balance for it to drain, and a set of signers who could not see the problem until bitcoin was already gone. A solo-mining pool built around a pooled payout wallet carries a version of the same structural question: who holds the balance between a block being found and a miner being paid, and what happens if that bookkeeping is ever wrong.

NexusPool's answer is that there is nothing to drain in the first place. The block pays your address. There is no balance for us to hold. The coinbase transaction of a found block pays the miner's own address directly, with 0% taken by the pool, and NexusPool's Payout Preflight tool shows a miner the exact coinbase that would pay them on the current block, built by the same code that builds a real one, before any block is found. Every hour NexusPool publishes a signed receipt for the work it counted, against a key it makes public, and a miner can check it on the Glass Ledger page instead of trusting a dashboard.

This is not a claim that non-custodial design makes bugs impossible, or that NexusPool's own software is open for anyone to audit today, since it is not yet. It also does not change how often any miner, on any pool, finds a block: those odds come from hashrate and network difficulty alone. Nothing about pool design is an investment or a guaranteed return. It is a difference in what there is to fail. Liquid had a reserve that could be drained because it existed as a single, shared pot. A pool that never creates that pot removes that specific failure mode, even though it cannot remove every other kind of bug.

Is Liquid Network's bitcoin safe now?

Not fully, not yet: swaps work again through providers, but federation peg-outs stay off until the reserve reads 100% backed and the remaining security steps are done, which as of today had not happened. Anyone holding L-BTC who wants to know when that changes should watch for the federation's own announcement of restored 1:1 backing and reopened peg-outs, not the October 20 swap update, which answers a different question. For a wider look at how NexusPool's mining setup is built around never holding a shared balance at all, NexusPool's technology overview explains the mechanics end to end.

Trust nothing. Verify who actually holds the bitcoin behind any balance you're shown.