Liquid Network halted bridge activity after SideSwap processed a 3,996 BTC peg-out from 4,000 L-BTC created through an Elements software flaw, draining roughly 95% of federation reserves without a Peg-out Authorization Key, or PAK, compromise. Bitcoin's base layer continued operating normally, while Liquid said USDT, DePix and tokenized real-world assets issued on the sidechain were unaffected, though deposits, withdrawals and swaps remained offline. Independent technical analysis attributed the unbacked L-BTC to a confidential-transactions rangeproof cache bug; a repair had been merged into Elements but had not been released in a tagged build. The receiving party called itself a white hat and said most funds would return after the bug was fixed and every node patched, a pledge that remained unverified as the coins stayed at its address on September 7, 2026.