Liquid peg-outs remain disabled after Blockstream rejects ransom

Blockstream has kept peg-out operations for L-BTC on the Liquid network disabled after refusing a ransom demand from an attacker. The suspension prevents holders from converting L-BTC back to Bitcoin while the company investigates.

Blockstream wrote that it suspended peg-out to protect user funds after receiving a demand from an attacker who claimed the ability to interfere with Liquid’s redemption process. The company declined the demand and notified network participants that peg-out functions would remain turned off while it works with security experts and law enforcement.

Peg-out lets users move L-BTC — Liquid’s token that tracks Bitcoin at a 1:1 ratio — back to the Bitcoin blockchain. The operation requires signatures from the Liquid federation’s functionaries to release the underlying BTC. Disabling peg-out prevents exits from the sidechain until the service is restored.

Exchanges and custodians that support L-BTC have paused withdrawals and posted advisories warning customers that conversions are not possible while the peg-out suspension is in effect. Trading on Liquid continues, but some market participants reported increased price divergence and reduced liquidity as certain market makers reduced activity.

Blockstream has engaged independent forensic teams to analyze the claim and look for signs of unauthorized access. The company also notified law enforcement and is coordinating with federation members. It has not provided a timetable for when peg-out will be re-enabled and has not released evidence that reserves backing L-BTC have been stolen.

Users who moved BTC into Liquid before the suspension cannot redeem those funds to the Bitcoin main chain until peg-out is restored. Firms that use Liquid for faster settlements and confidential transfers are adjusting operations to limit exposure to tokens that cannot be returned to the Bitcoin network.

Investigations are ongoing. Exchanges and custodians remain in contact with Blockstream and continue to warn clients that conversion services will stay suspended until the company confirms it is safe to resume peg-out.