The Liquid Network’s Bitcoin reserve has returned to full backing of its circulating L-BTC token, swap provider SideSwap reported on Nov. 3, marking recovery from a September software flaw that created approximately 4,000 unbacked tokens.
SideSwap holds 4,270.54 BTC in reserve backing an equal 4,270.54 L-BTC in circulation as of the morning of Nov. 3. The milestone follows deposits of 300 BTC and 250 BTC received on Nov. 2, which replenished SideSwap’s payout wallet after weeks of customer conversions.
How the Restoration Unfolded
A flaw in Elements software on Sept. 6 allowed roughly 4,000 L-BTC to be minted without corresponding Bitcoin backing. Those tokens were converted into actual Bitcoin through SideSwap, draining the reserve.
SideSwap opened its L-BTC-to-BTC conversion service on Oct. 20 at a one-to-one exchange rate minus a 0.1% fee. The service operates from SideSwap’s own Bitcoin wallet rather than directly from the Liquid Federation’s reserve. Customer payouts are processed in arrival order after SideSwap manually refills its wallet by exchanging L-BTC for Bitcoin in bulk with other exchanges.
The Liquid Federation issued a recovery plan on Oct. 20 that prioritized restoring full 1:1 backing before reactivating direct Federation peg-outs, which remain restricted. Those direct withdrawals are reserved for authorized PAK key holders once the Federation determines security and operational requirements have been met.
Current Constraints on Withdrawals
Full reserve backing does not guarantee immediate payout capacity. Queued conversion orders are fulfilled after wallet refills, and no guaranteed completion time is provided. SideSwap does not know when Federation peg-outs will resume, despite the reserve backing milestone.
Direct peg-outs through the Liquid Federation remain offline pending the Federation’s operational review. All current customer conversions flow through SideSwap’s wallet, which depends on manual refills sourced from bulk L-BTC exchanges.
