Blockstream rejects hacker’s bounty demand for 598 BTC from Liquid Network exploit

A security researcher who helped design Immunefi’s Whitehat Safe Harbor framework said the group behind Liquid Network’s roughly 4,000 BTC exploit had no authority to claim white-hat status over the 598.5 BTC it kept, after Blockstream, in a Sept. 11, 2026, statement, rejected the attackers’ 10% bounty demand.

“Coordinated disclosure ends the moment you set the terms yourself,” Amador said. “The money was never yours to save, so moving it is not a rescue.”

His position centers on authorization rather than intent. A researcher may discover a serious vulnerability, but that discovery does not itself authorize the person to transfer user assets, retain part of them, or establish compensation terms afterward.

The Liquid Network dispute followed an incident in which unidentified actors withdrew about 4,000 BTC after exploiting a weakness connected to confidential transaction verification. The attackers later returned 3,400 BTC after Blockstream patched affected bridge nodes, while 598.5 BTC remained with them.

Blockstream has rejected both the 10% bounty demand and the argument that the incident represented responsible disclosure. In its Sept. 11 response, the company said its discussions with the actors were aimed at recovering user funds and protecting the broader Bitcoin ecosystem, rather than accepting the withdrawal or the later demand for payment.

A technical review reported that a cache-key collision in Elements’ confidential transaction verification logic allowed the attackers to create unbacked L-BTC. They then used SideSwap’s peg-out service to obtain real Bitcoin from the federation reserve. Blockstream said federation keys were not compromised and instead pointed to verification logic in the Elements codebase and a release running on federation nodes that lacked the relevant fix.

Liquid Network rescue rules should be set beforehand

Amador argued that protocols should establish clear rescue and bounty rules before an exploit occurs, rather than negotiating while user funds are already under someone else’s control.

“Yes, rescue terms must exist ahead of an exploit,” he said. “All serious protocols should set these in advance.”

Such rules can specify which systems researchers may test, how vulnerabilities should be reported, what actions are permitted during an incident, and how compensation will be determined. They can also define bounty limits and legal protections for researchers who remain within the approved scope.

Immunefi created its Whitehat Safe Harbor framework to establish those conditions before a security incident. Amador, who helped shape the framework and has participated in exploit-response efforts, has argued that emergency circumstances do not remove the need for agreed boundaries.

The issue is particularly significant in the Liquid Network case because the attackers communicated through messages placed in Bitcoin transactions and told Blockstream to patch the vulnerability before returning funds. After Blockstream confirmed that affected bridge nodes had been patched, the group returned 3,400 BTC to the federation wallet.

No publicly disclosed agreement authorized the group to retain the remaining 598.5 BTC. That amount was also greater than 10% of the roughly 4,000 BTC involved, despite the reported demand being based on a 10% reward.

Liquid Network dispute highlights 10% bounty convention

While rejecting the attackers’ attempt to establish their own terms, Amador defended the industry practice of offering as much as 10% of funds at risk as a white-hat bounty when a protocol approves the arrangement in advance.

“Ten percent of a $100M exploit is $10M earned legally, with nobody hunting you afterwards,” Amador said. “The alternative for them is moving nine figures onchain while every forensics firm watches.”

The convention is intended to provide researchers with a defined path to compensation while allowing protocols to recover most of the exposed assets. Amador said the reward should generally reach up to 10% of the funds at risk, while remaining subject to a cap that the protocol can afford.

He also acknowledged that projects can choose different formulas. BTCPay Server supporters, for example, backed a 10% reward in August for the recovery of stolen Bitcoin, with the proposed payout capped at 3 BTC. Cetus Protocol used a different approach after its May 2025 exploit, when losses exceeded $223 million and the Sui Foundation coordinated with validators to freeze about $163 million. Cetus later announced a $5 million reward for information leading to the attacker’s identification.

Amador said setting a bounty too low could reduce the incentive for legitimate disclosure, while an excessively large reward could threaten the financial survival of a protocol.

“Price it too high, and paying out can kill the protocol you just saved, which helps nobody,” he said.

The Liquid Network episode therefore underscores the distinction between an authorized security intervention and an unauthorized transfer followed by a payment demand. Under Amador’s framework, protocols should retain authority over bounty terms unless they have agreed otherwise before an incident.

Liquid Network case raises legal risks for researchers

The debate also has implications beyond industry bounty policies. In the United States, returning some stolen assets or attempting to negotiate with a victim does not necessarily remove the legal consequences of unauthorized access.

In December 2023, former security engineer Shakeeb Ahmed pleaded guilty to computer fraud after exploiting two decentralized exchanges and obtaining more than $12 million. The U.S. Justice Department said Ahmed negotiated with one platform and proposed returning the stolen funds except for $1.5 million if the exchange agreed not to contact law enforcement.

Federal prosecutors said Ahmed later agreed to forfeit more than $12.3 million, including about $5.6 million in fraudulently obtained cryptocurrency. In April 2024, a federal judge sentenced him to three years in prison and ordered the forfeiture of the stolen assets.

The legal case illustrates why the Liquid Network dispute extends beyond questions about industry etiquette or bounty size. The central issue is whether a researcher had authorization to move assets and whether any later agreement actually permitted the researcher to keep a portion.

For protocols, Amador’s position points toward pre-established rules that can define disclosure channels, permitted emergency actions and compensation. For researchers, the dispute reinforces the importance of staying within those rules rather than taking custody of funds and negotiating afterward.