The Liquid Network is moving into the next phase of its recovery following a security incident, with BTC-to-LBTC swaps beginning to resume while direct Federation peg-outs remain restricted. In an update published on October 20, 2026, the Liquid Federation said it had made progress on network security, accounting changes, and the safeguards required to restore full operations.
The recovery effort has involved the Liquid Federation, Blockstream, and independent security experts. Their work over recent weeks has focused on strengthening security controls, refactoring network accounting, and verifying that the necessary protections are in place before normal operations resume. The Federation described the latest developments as an important step toward broader operational readiness.
Liquid Network Reopens Swap Access Under Enhanced Safeguards
A major milestone has been the deployment of updated Federation software responsible for managing the network’s bitcoin reserves. According to the Federation, the software accommodates the network’s post-incident accounting state and supports the continued secure management of Federation funds.
A sufficient number of Federation functionaries have now updated their software, allowing the network to progress to its next recovery stage. However, the Federation stressed that multiple independent safeguards remain active to prevent premature or unauthorized peg-outs while the remaining restoration steps are completed.
The immediate change is the resumption of semi-automated swaps between bitcoin (BTC) and Liquid bitcoin (LBTC). These swaps are being enabled in coordination with participating providers, without protocol-imposed volume limits on the service, according to the announcement.
For users accessing Liquid through supported swap providers, the service is expected to offer a practical route for converting LBTC into BTC while direct Federation peg-outs remain unavailable. This distinction matters because the return of swap access does not mean that all network functions have been restored or that users can freely withdraw LBTC through the Federation.
The staged approach allows some functionality to return without removing the security controls introduced during the recovery. Users will still need to rely on supported providers and the services they make available, rather than assuming that every conversion or withdrawal route is operating normally.
The announcement did not identify a date for the full restoration of direct peg-outs. Instead, the Federation said further updates would follow as individual recovery stages are completed.
Full Bitcoin Backing Remains the Final Recovery Milestone
The final phase involves reestablishing the network’s full 1:1 bitcoin backing, followed by the controlled reactivation of Federation peg-outs for authorized PAK key holders. The Federation said substantial progress had been made toward this objective, with the necessary technical infrastructure and safeguards in place.
However, the return of normal peg-out functionality remains subject to the completion of outstanding security and operational requirements. The announcement therefore signals progress toward restoration rather than confirmation that the process is complete.
The Federation also plans to provide transparent monitoring of the network’s bitcoin reserves through block explorers as part of the restoration process. Greater visibility into reserves could help users and market participants assess the network’s backing as normal operations return, although the update did not provide a final reserve reconciliation or confirm that full backing had already been restored.
Liquid is designed to serve as a financial layer built on Bitcoin, supporting digital asset issuance and transfers. The current recovery process highlights the operational importance of reserve management and controlled withdrawal mechanisms for networks that connect issued assets to bitcoin reserves.
For LBTC holders, the key distinction remains between the return of swap services and the restoration of direct peg-outs. Swap access is expanding, but Federation withdrawals remain paused until the outstanding conditions are satisfied. The next meaningful milestone will be confirmation that full 1:1 backing has been reestablished and direct peg-outs can safely resume.
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