Liquid gradually reactivates swaps after the September incident

A phased recovery announced on 20 October

On 20 October 2026, the Liquid Federation presented another stage in restoring its network. Semi-automated swaps between BTC and LBTC are being gradually reactivated with participating providers. This development is intended to restore a practical conversion route for affected users while direct withdrawals through the federation remain restricted.

The announcement follows several weeks of work with Blockstream and independent specialists. It concerns updates to the software managing bitcoin reserves and adjustments to the network's accounting following the incident. The federation states that enough operators have installed these changes to prepare for the next phase.

It would nevertheless be premature to conclude that every function has returned to normal operation. The communication describes a gradual restoration, with controls maintained while the final operational and security requirements are addressed.

A September incident rather than a new October attack

Blockstream's technical report dates the initial exploitation to 6 September 2026. A vulnerability in the verification of certain proofs in Elements software enabled approximately 4,000 LBTC to be created without corresponding bitcoins in reserve. The units created through that vulnerability were subsequently used as part of a process for withdrawing from Liquid and moving value out to the Bitcoin network.

The documented problem therefore concerned validation rules and their implementation. The incident documented in that report must therefore not be explained as though it had resulted from someone stealing the personal recovery phrase of an individual wallet. This distinction between the two kinds of security issue is important: protecting a wallet's secrets and preventing the creation of unbacked assets are two different security issues.

In its assessment published on 23 September, Blockstream stated that 3,400 BTC had been returned on 7 September and approximately 602 BTC remained to be recovered. These amounts belong to that report's assessment. They are not independent certification, as of today, of the exact amount still missing or of each user's situation.

Converting LBTC and restoring reserves are separate operations

The October update explicitly distinguishes swaps offered by providers from direct federation withdrawals. The former provide a BTC–LBTC conversion route. The latter rely on the network's exit mechanism and remain subject to restrictions during restoration.

The final phase described by the federation includes fully restoring backing of one bitcoin for every LBTC, followed by a controlled reactivation of withdrawals for holders of the necessary authorisations. Availability of a commercial conversion service therefore does not, by itself, prove that every stage of rebuilding reserves has been completed.

For users, the information to monitor is concrete: which providers are participating in the resumption, which operations they permit and which limits still apply. Official messages about reserves and direct exits must be read separately from announcements that a particular service has resumed. The progress announced concerns a useful function; a full return to normal operation remains conditional on completion of the process described by Liquid. A functioning conversion route and a completed restoration of the network's reserves must therefore continue to be treated as different milestones.