Liquid Network Hack Highlights Security Weaknesses in Cross-Chain, Custody Infrastructure

The recent hack involving Bitcoin-linked Liquid Network has renewed scrutiny of security risks in crypto's surrounding infrastructure, including cross-chain and custody systems.

Bloomberg reported on September 8 that about 4,000 BTC, worth roughly $320 million, was drained from key wallets on the Liquid Network on September 6. The attacker later returned 3,400 BTC, while assets worth about $47 million were not recovered.

Liquid said the payment platform's authentication keys themselves were not stolen in the attack. That has put the spotlight on vulnerabilities in surrounding infrastructure such as wallets, custody, and payment and trading systems, rather than in the blockchain network itself.

According to DefiLlama, about $1.4 billion has been stolen in roughly 250 hacks so far this year. Attacks targeting bridges and cross-chain infrastructure accounted for 26 cases, or more than 10% of the total. There were three such attacks last year.

"The vulnerabilities are emerging in the operations and infrastructure layers, rather than in blockchain's core consensus architecture," said Ziqing Ang, TRM Labs' head of Asia-Pacific policy.

Bloomberg said that as traditional financial institutions expand their use of digital assets, ensuring the security and reliability of custody, smart-contract and payments infrastructure is emerging as a key challenge for institutional adoption.