Liquid reserve gap narrows to 600 BTC after test transfer
Samson Mow said the remaining funds should arrive within days as the federation prepares to resume direct peg-outs for users.
Key takeaways
- 1Liquid Network narrowed its reserve gap to 600 BTC on 27 October.
- 2Samson Mow said the remaining funds will arrive in the coming days.
- 3The federation requires full backing before direct peg-outs resume.
- 4A test transfer was used to verify the recovery path.
The Liquid Network narrowed its reserve deficit to 600 BTC on 27 October after completing a test transfer of funds into its multisig wallets. The move is part of an ongoing effort to restore the full backing of the sidechain, which had been operating with a shortfall of assets.
Samson Mow, who is working on the recovery process, said the remaining bitcoin will arrive in the coming days. According to The Defiant, the federation's recovery plan requires the bridge to be fully backed before direct peg-outs can resume for all users. This test transfer serves as a verification that the technical path for moving the remaining assets is clear.
The Liquid Network is a secondary layer built on top of Bitcoin, designed primarily for exchanges, traders, and institutional participants. It allows for the issuance of stablecoins and other digital assets, while its native token, L-BTC, is meant to be pegged one-to-one with bitcoin. Transactions on Liquid are faster and offer more privacy than those on the main Bitcoin blockchain.
A reserve gap occurs when the amount of bitcoin held in the federation's secure wallets is lower than the total supply of L-BTC tokens in circulation. This imbalance is a serious issue for sidechains because it means not every token can be redeemed for the underlying asset. To protect the integrity of the system, the federation typically halts the peg-out process, which is the mechanism used to move funds from the sidechain back to the mainnet.
The federation is a group of cryptocurrency businesses and exchanges that collectively manage the network. They use a distributed multisig hardware system to sign off on transactions and bridge transfers. Mow said the recovery plan must be completed in full before the federation members agree to restart the automated withdrawal services.
Once the final 600 BTC is deposited, the network will have restored the parity between its issued tokens and its physical holdings. The Defiant reported that this will allow the network to return to its standard operating state. Users currently holding L-BTC are waiting for this final step to regain the ability to move their assets back to the main Bitcoin network without restrictions.
The network has not provided a specific timeline for the final transfer beyond Mow’s statement that it would occur soon. Federation members are expected to monitor the final deposit before voting to re-enable the peg-out functionality. This process ensures that no single entity can control the bridge or resume operations without the consensus of the group.
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