The crypto market has faced another major security crisis after about 4,000 Bitcoin, worth close to $320 million, left the federation wallet of Liquid Network. The Bitcoin-based payments and settlement network said the funds were taken in what it described as a security incident.
The event has raised fresh questions about the safety of crypto networks that hold large amounts of digital assets under the control of a group of approved members. It has also placed attention on the way Bitcoin moves between its main network and other systems built around it.
Liquid Network said about 4,000 of the 4,200 Bitcoin in its federation wallet were withdrawn. That means almost all of the Bitcoin held in that wallet left during the incident. Reuters reported the news on September 7, 2026, as the crypto sector tried to understand what had happened.
What Happened to the Bitcoin
Liquid Network said the Bitcoin left its federation wallet through SideSwap, a settlement platform that has permission to handle withdrawals from the network.
The network said the key used in the withdrawal process was not compromised. It also said that no other keys had been compromised. This detail makes the case more complex because the funds left the wallet even though Liquid said the key itself was safe.
The people behind the withdrawal have described themselves as “white-hat hackers.” In simple terms, a white-hat hacker is a person who finds a security weakness and claims to act to protect a system rather than steal money for personal gain.
However, their claim has not been confirmed. Liquid used the term “purported white-hat hackers” when it described the people behind the incident. Their identity remains unclear, and there is no confirmed report that the Bitcoin has been returned.
Liquid Network Stops New Transactions
After the incident, Liquid Network stopped new transactions. The move was meant to protect the system while its members tried to understand the problem and decide what action to take.
The network also warned that Liquid wallets would be affected. Crypto exchanges were told about the problem, and several exchanges stopped, or prepared to stop, deposits and withdrawals linked to LBTC, the Bitcoin-backed asset used on Liquid.
The pause means users cannot use the network in the normal way until the issue is resolved. Liquid said its federation members were working to restore normal network activity.
For users, this creates a simple but serious problem. A network that helps move Bitcoin between different systems must remain available and secure. When such a network stops, users can face delays and limits on access to their funds.
What Is Liquid Network?
Liquid Network is a Bitcoin sidechain. It works alongside the main Bitcoin network and is designed to support faster and more private transfers. It also supports digital assets and settlement for crypto businesses.
The system uses a federation to protect the Bitcoin held behind its Bitcoin-backed asset. Users can lock Bitcoin on the main Bitcoin network and receive an equal amount of LBTC on Liquid. Later, LBTC can move back through the peg-out process.
This system means the Bitcoin held by the federation is very important. It acts as the backing for Bitcoin represented on Liquid.
That is why the loss of about 4,000 BTC is so serious. The amount represents almost 95% of the roughly 4,200 BTC held in the federation wallet before the incident, based on reports from The Block.
The White-Hat Claim Raises Questions
The claim from the people behind the withdrawal has created another layer of uncertainty.
A person who finds a security weakness can report it to a company without taking a large amount of money. In this case, however, about 4,000 BTC left the wallet. The people behind the move then left a message that said they were white hats and asked Liquid to contact them through the blockchain.
That has led some security experts to question whether the people are really acting to protect the network.
Ledger Chief Technology Officer Charles Guillemet has also questioned the white-hat claim. He said the action does not look like normal white-hat work. At the same time, he noted that the final answer may depend on what happens to the Bitcoin next.
The key question is now simple: will the Bitcoin return to the Liquid federation, or will the funds remain under the control of the people who took them?
Bitcoin Itself Was Not Hacked
It is important to understand one major point.
The incident does not mean that the Bitcoin network itself was hacked.
The main Bitcoin blockchain continues to operate. The problem took place within Liquid Network, which is a separate system built around Bitcoin.
This difference matters. Bitcoin is a large global network with its own security system and rules. Liquid has its own structure, with a federation that manages the Bitcoin held for its users.
So, the incident is better seen as a major security problem for a Bitcoin-linked network rather than a failure of Bitcoin itself.
Why the $320 Million Loss Matters
A loss of $320 million is large even by crypto standards. More important, the incident affects trust.
Crypto users often choose digital assets because they want direct control and fast access to money. When a network that supports large Bitcoin transfers faces a security failure, users may become more careful about where they keep their assets.
The event also shows the risk that can exist in systems that connect different blockchains or use a group of trusted members to protect funds.
Liquid was designed to offer speed, privacy and useful tools for crypto businesses. Yet the incident shows that extra layers around Bitcoin can create their own security risks.
A Difficult Day for Crypto Security
The Liquid Network incident comes at a time when crypto investors are already dealing with a cautious market. Bitcoin has traded near the $80,000 level, while concerns about interest rates, oil prices and global tensions have put pressure on risk assets.
Against that backdrop, news of a $320 million crypto security incident adds another source of concern.
For now, the most important facts are clear. About 4,000 BTC, worth about $320 million, left the Liquid federation wallet. The wallet held about 4,200 BTC before the incident. Liquid stopped new transactions, exchanges paused or prepared to pause LBTC activity, and the people behind the withdrawal claimed to be white-hat hackers.
What remains unclear is why the withdrawal was possible, who carried it out, and whether the Bitcoin will return.
Until those questions have clear answers, the Liquid Network will remain under close attention from the wider crypto market. The incident is a strong reminder that even systems built around Bitcoin can face serious security risks, and that trust can disappear very quickly when hundreds of millions of dollars are at stake.
Also Read – 245 IPOs Show India’s Rising Appetite for Market Risk
