The Liquid Network has restored semi-automated swaps between Bitcoin and L-BTC, the first phase of a staged recovery plan the Liquid Federation outlined in an October 20th blog post.

Direct peg-outs, which let users redeem L-BTC for Bitcoin on the main chain, remain paused.

L-BTC is the token on Liquid, a Bitcoin sidechain, that is meant to be backed one-to-one by Bitcoin held by the Federation.

According to the post, the swaps run through participating swap providers with no protocol-imposed volume limits, giving most users of supported providers a practical way to convert L-BTC back to Bitcoin.

In its X post announcing the update, Liquid described the service as "semi-automated swaps for Federation members" and noted that normal peg and balance validation "will be reinstated soon."

The recovery follows a September 6th exploit in which a flaw in Elements, Liquid's underlying software, allowed roughly 4,000 unbacked L-BTC to be redeemed for 3,996.02 Bitcoin, according to the Federation's incident assessment.

A total of 3,400 Bitcoin was returned on September 7th, leaving approximately 602 Bitcoin subject to ongoing recovery efforts.

Since then, the Federation has worked with Blockstream and independent security experts to strengthen network security, refactor the network's accounting, and validate the safeguards needed to resume full operations.

A key step was the rollout of updated Federation software that manages the network's Bitcoin reserves and reflects its post-incident accounting state.

The Federation reported that enough of its functionaries, the members who operate the network's signing infrastructure, have installed the update to move into the next phase.

It added that multiple independent safeguards remain in place to block premature or unauthorized peg-outs.

In the final phase, the Federation plans to restore full 1:1 Bitcoin backing for L-BTC before reopening peg-outs in a controlled manner for authorized holders of Pegout Authorization Keys (PAKs), which Liquid uses to limit who can submit peg-out requests.

Once normal peg-out functionality returns, reserves are expected to be monitored transparently through block explorers, subject to remaining security and operational requirements.

The Federation confirmed it will publish further updates as each stage is completed.