Liquid Federation

The Liquid Federation is the group of companies that oversee the Liquid Network sidechain. Fifteen functionaries, each run by a single member, sign Liquid blocks and hold the 15 keys to the multisig wallet behind the two-way peg with Bitcoin's mainnet. A functionary is a server paired with a hardware security module (HSM). The other members can peg in and out and validate the chain, but play no direct role in securing it.

The structure as of 2026:

• 87 federation members, as of May 2026. Most of the 23 launch members in 2018 were exchanges, such as Bitfinex and BTSE. Later members include wallet, payment and swap companies such as Bull Bitcoin, SideSwap and Boltz. Blockstream, which built Liquid, is the federation's technology provider.
• Block signing rotates. The 15 functionaries take turns proposing blocks, and a block joins the chain once 11 of the 15 have checked and signed it. Blocks come every ~1 minute.
• Peg-out approval requires a threshold. Moving BTC from Liquid back to Bitcoin's mainnet via peg-out requires signatures from 11 of the 15 functionaries that hold the federation wallet's keys, as of October 2026.
• Keys in dedicated hardware. Each functionary keeps its keys in its HSM, which in normal operation won't sign a block that would reorganize the chain by more than one block, and signs a peg-out only if the coins go back to the federation or to a whitelisted address. The functionaries are spread around the world.

The trust assumption: if 11 of the 15 functionaries colluded, or had their keys stolen, they could sign away the pegged BTC. If five or more went offline or stopped signing, the sidechain would halt. Spreading the functionaries across operators and countries makes this hard but not impossible. As a backstop, Blockstream holds a set of emergency backup keys that can spend the pegged coins once a timelock of up to 4,032 blocks (about 28 days) runs out. The federation keeps refreshing those timelocks while the network runs normally, so the emergency keys only come into play if it stops working. The peg also depends on the software every functionary runs, as the 2026 exploit described below showed.

What this trust gets in exchange:

• Fast settlement. ~1-minute blocks vs Bitcoin's ~10-minute.
• Confidential transactions. Bitcoin's transparent chain can't hide amounts; Liquid's does.
• Issued assets. Stablecoins such as USDT and DePix, and tokenized securities, are issued on the same chain.

The September 2026 exploit. On September 6, 2026, an attacker used a bug in how Elements, the software every functionary runs, caches range-proof checks, and created about 4,000 L-BTC with no bitcoin behind it. The functionaries accepted those coins as valid, and when the attacker redeemed them through SideSwap's peg-out service, they signed the release of about 3,996 BTC. According to Blockstream, no keys were compromised. It traced the loss to two weak points: the shared software the functionaries rely on to reject fake coins, and the way SideSwap ran its peg-out service, paying out automatically instead of holding the BTC for a manual check. The attacker returned 3,400 BTC the next day. To remove the fake coins, Blockstream's recovery rolled Liquid back to block 4,050,335, the last block before the attack, and replayed the valid transactions. As of October 10, 2026, peg-outs were still paused and the peg wallet held about 600 BTC less than the L-BTC in circulation. See Liquid Network for more on the incident.

Whether the trade is worth it depends on how far you trust the 15 functionary operators and the software they run. If you don't, you have to look elsewhere - mainnet, Lightning, or watch what BIP-300 drivechains eventually become.

See Liquid Network for the sidechain itself.