Liquid Network investigation points to transaction-validation cache failure in $320 million Bitcoin incident

Researchers investigating the roughly $320 million Bitcoin incident involving the Liquid Network have identified an alleged weakness in the software’s transaction-validation cache. The finding offers a more specific explanation for how tokens without corresponding backing may have been created and subsequently redeemed for real Bitcoin. The incident concerns Liquid, a Bitcoin sidechain, and the mechanism by which its transactions were validated. Separate accounts have also raised questions about when the relevant code was deployed. Mononaut said the exploited bug had entered Elements’ master development branch during the previous week, although the available report does not establish how or when it reached the affected system. The findings remain an investigation into the incident rather than a definitive public conclusion on its full cause. The episode highlights the role of software validation processes in determining whether sidechain-issued assets can be exchanged for Bitcoin held outside the system.