Liquid transaction-processing recovery

The evidence available on September 9, 2026 describes a deterministic Elements validation failure that allowed unbacked L-BTC and led SideSwap and Liquid functionaries to accept poisoned state and authorize Bitcoin peg-outs.

That makes continued transaction processing unsafe before validation and settlement state are independently checked. The reported gross movement and smaller retained balance also remain unreconciled.

Immediate suspension limits further settlement changes while validation, quarantine, and accounting proceed; the absence of verified release evidence prevents version-based reopening.

Liquid custodians and exchanges handling deposits, withdrawals, and redemptions face settlement and balance uncertainty until reconciliation closes.

Liquid functionaries that authorize Bitcoin peg-outs must verify federation-controlled settlement state before resuming authorization. SideSwap is specifically identified as having accepted the poisoned state and must quarantine and reconcile post-incident assets.

Bridge operators and operators of the affected Elements validation path must replace cached acceptance with trustworthy cryptographic validation. Customers and counterparties relying on those services face delayed processing and unresolved balances while reserves and liabilities remain unreconciled.

No affected or fixed Elements release range has been verified; Elements v23.3.4 cannot yet be classified from the recorded evidence.

Support — The crypto-fincrime analysis reports that an ambiguous Elements range-proof cache key could let distinct validation inputs collide, with a cache hit occurring before commitment parsing and cryptographic verification.

It says an invalid proof created unbacked L-BTC and that SideSwap and Liquid functionaries accepted the poisoned state and authorized Bitcoin peg-outs.

Support — The Roundtable synthesis classifies the event as a transaction-validation failure rather than evidence of stolen keys and distinguishes gross movement from the smaller retained balance.

Support — The action evidence audit supports suspending processing, quarantining post-incident assets, continuing trustworthy validation, and reconciling reserves, liabilities, and peg-outs before reopening. Insufficient evidence — The wording audit finds no support for halting validation itself.

Evidence gap — The release audit finds no official advisory or release evidence establishing affected or fixed Elements versions, including the status of Elements v23.3.4.

The scouting role proposed suspending Liquid transaction processing and reconciling settlement state, but initially included stopping validation.

The crypto-fincrime analysis traced the incident to deterministic Elements validation behavior rather than stolen signing keys.

Evidence auditors supported suspension, quarantine, corrected or uncached validation, and reconciliation, while rejecting language that halted validation itself and flagging the absence of verified release information. The boundary reviewer applied those limits.

The linker found no prior matching Decision Record, and the arbiter selected a new record with transaction processing stopped while trustworthy validation continues.