Liquid Network

The Liquid Network is a federated Bitcoin sidechain developed by Blockstream and operating since September 2018. It offers faster settlements (~1-minute blocks vs Bitcoin's ~10-minute), confidential transactions (amounts and asset types are hidden from chain observers), and a native asset-issuance framework. Pegged BTC on Liquid is called L-BTC.

How Liquid works in practice:

• The Liquid Federation - 87 member companies as of May 2026, from exchanges and trading firms to wallets and asset issuers - oversees the sidechain. Fifteen functionaries, each run by a single member, take turns proposing blocks, and each block needs signatures from 11 of the 15.
• Peg-in sends BTC to a federation-controlled multisig on mainnet; L-BTC is issued on Liquid 1:1.
• Peg-out burns L-BTC on Liquid; the functionaries release the same amount of BTC from the mainnet multisig. They pay only to addresses registered under a member's peg-out authorization key (PAK).
• Confidential Transactions use cryptographic commitments (homomorphic Pedersen commitments) to hide amounts while letting nodes verify no inflation occurred. Each hidden amount comes with a range proof showing it falls within a valid range, and the September 2026 exploit got around that check (see below).
• Issued Assets. Liquid supports issuing arbitrary assets (used for Tether's USDT, the Brazilian-real stablecoin DePix, tokenized securities, etc.) alongside L-BTC.

What Liquid is used for, as of 2026:

• Inter-exchange settlement. Liquid launched in 2018 as a settlement network for exchanges, market makers and brokers. In normal operation its transactions are final after two blocks, about two to three minutes.
• Stablecoin payments. DePix, a stablecoin pegged to the Brazilian real, made up roughly half of Liquid's transaction volume in early 2026. Tether's USDT is also issued on Liquid.
• Security token experiments. Several issuers have launched tokenized securities on Liquid.

What Liquid is not:

• Not trustless like mainnet. If 11 of the 15 functionaries colluded, or had their keys stolen, they could in principle steal pegged BTC. The peg also depends on the software every node runs being free of bugs, as the September 2026 exploit showed. These are trust assumptions, materially different from Bitcoin's proof-of-work security model.
• Not Bitcoin's main scaling solution. Liquid serves a specific niche (institutional fast settlement, confidential transactions). Lightning is the general-purpose layer-2.

The September 2026 exploit. On September 6, 2026, an attacker used a flaw in Elements, the software Liquid runs, to create about 4,000 L-BTC with no bitcoin behind it: nodes cache the results of range-proof checks, and a forged proof matched an earlier, genuine cache entry, so it was never actually checked. The attacker redeemed the coins through the peg-out service of SideSwap, a federation member, and the functionaries released about 3,996 BTC on Bitcoin; Blockstream says no keys were compromised. The attacker returned 3,400 BTC the next day. To remove the fake coins, Blockstream's recovery restarted the chain from block 4,050,335, the last block before the attack, and replayed the valid transactions. Transactions resumed on September 10 after a fix shipped in Elements 23.3.4, but 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. Liquid's official update of September 17 said peg-outs would resume only once L-BTC was fully backed 1:1 again, and gave no date. Blockstream refused the attacker's demand for a bounty on the coins still held, Decrypt reported.

See Liquid Federation for the federation structure and Sidechain for the broader category.