Liquid Network has resumed block production without processing transactions after a $320 million Bitcoin withdrawal forced the sidechain to halt operations.

Liquid Network said in a Thursday update that its functionary nodes were again producing blocks as intended, but the network would operate “without transactions” while developers monitored its condition.

The limited restart allows Liquid to test its updated infrastructure without reopening transfers or exposing the peg system to new activity. According to the network, keeping transactions disabled will help operators “confirm full stabilization” before they restore other services.

Functionary and bridge nodes have received the required software changes, Liquid added. Its functionaries can now sign and validate blocks, though users cannot yet send regular transactions or move funds between Bitcoin and Liquid.

Peg operations also remain suspended, including withdrawals approved through Peg-out Authorization Keys, or PAKs. Liquid said the restrictions would stay in place while it works to restore the reserve that supports Bitcoin issued on the sidechain as L-BTC.

Liquid Network has restarted with transactions disabled

Block production represents only one part of Liquid’s return to service because its transaction and bridge systems remain unavailable. The network has not provided a date for reopening either function.

Under normal conditions, users deposit BTC into the federation-controlled peg and receive an equal amount of L-BTC for use on Liquid. Holders can later burn L-BTC through an approved peg-out service to release the corresponding Bitcoin on the base layer.

Operators stopped that process after an actor created unbacked L-BTC by exploiting a proof-verification flaw in Elements, the open-source software behind Liquid. The actor then submitted the tokens through SideSwap’s authorized peg-out service, prompting the federation to release real Bitcoin.

As crypto.news previously reported, the transaction removed about 3,996 BTC and reduced the federation wallet from approximately 4,205 BTC to about 202 BTC. The withdrawal represented roughly 95% of the Bitcoin held in the wallet at the time.

Liquid described the actors as “purported white-hat hackers” after they identified themselves as white hats through messages attached to Bitcoin transactions. Their claim did not establish that they had permission to create the L-BTC or withdraw the underlying Bitcoin.

SideSwap said a customer had sent 4,000 L-BTC to its peg-out service, which processed the request under its normal system. Liquid and SideSwap said the key used to authorize the transaction had not been compromised.

Elements update changes proof-verification cache

One day before restarting block production, Liquid released an emergency Elements update designed to address the flaw connected to the withdrawal.

Elements v23.3.4 changes the cache keys used when validating range proofs, according to Liquid. Range proofs allow the network to confirm that a hidden transaction amount is valid without publicly revealing the amount, forming part of Liquid’s confidential transaction system.

The affected software stored successful proof-verification results so nodes could reuse them instead of repeating the full calculation. Previous reporting found that the cache did not include enough transaction context, allowing a valid proof result to be reused where it should have failed.

By exploiting that weakness, the actor created L-BTC without first locking an equal amount of Bitcoin in the federation wallet. Functionary nodes running the affected code accepted the tokens, while SideSwap’s peg-out process treated them as valid L-BTC and processed the withdrawal.

Liquid said version 23.3.4 hardens the cache keys associated with range proofs. Functionary and bridge nodes received the update before block signing restarted, although the network is still withholding transactions while operators check the deployment.

Liquid’s federation uses functionary nodes to confirm sidechain blocks and control the Bitcoin held behind L-BTC. The system relies on 15 rotating functionaries and requires 11 signatures to move funds from its multisignature wallet, according to an earlier technical account of the incident.

No federation signing key was reported stolen during the withdrawal. The failure instead involved the software used to decide whether the L-BTC submitted for redemption was valid.

Hackers returned 3,400 BTC after nodes were patched

Communication between Blockstream and the actors took place through messages embedded in Bitcoin transactions. In one message, the actors said they would return the assets after the vulnerable nodes had been repaired.

“Please fix the bug first,” the message said. “Make sure every node is patched. Then we will transfer the money back safely after confirming the fix.”

Blockstream later sent a signed message stating that its bridge nodes had been patched and that the Bitcoin was “safe to return.” Following that confirmation, the actors transferred 3,400 BTC back to the federation wallet.

The 3,400 BTC repayment restored about 85% of the withdrawn funds. At the time of the transfer, the returned Bitcoin was worth approximately $270 million.

About 598.5 BTC remained in the withdrawal-linked address after the repayment. The outstanding balance was worth roughly $46 million based on the Bitcoin price cited in the supplied report, though its dollar value changes with the market.

No public agreement has identified the remaining Bitcoin as an approved security bounty. The actors have not publicly stated whether they plan to return another portion, while Blockstream has not announced terms allowing them to keep the balance.

Ledger Chief Technology Officer Charles Guillemet questioned the white-hat label after the partial repayment. In an X post, he argued that retaining about 600 BTC without publicly disclosed terms looked more like extortion than a standard security reward.

L-BTC holders await restoration of peg services

Liquid operates as a federated Bitcoin sidechain that allows exchanges, trading firms and other users to transfer BTC-linked assets with shorter settlement times than Bitcoin’s base layer. Blockstream launched the production network in 2018 using Elements software.

L-BTC depends on Bitcoin held in the federation wallet to maintain its one-to-one backing. Until Liquid restores peg operations, holders cannot use the normal bridge process to redeem L-BTC for native Bitcoin.

A previous bridge security explainer described how systems that lock assets on one chain and issue linked tokens on another depend on their custody, validation, and message-processing controls. A failure in any part of that process can suspend redemptions even when the underlying blockchain continues to operate.

For U.S. users, the current effect is limited to access and operations rather than a stated change in federal policy. American L-BTC holders face the same transaction and peg restrictions as users elsewhere, while BTC held directly on Bitcoin’s base layer remains separate from the Liquid system.

No U.S. regulator or law enforcement agency has announced an action connected to the withdrawal. Liquid also has not given a timetable for restoring transactions, PAK-authorized peg-outs, or other bridge operations.

Nasdaq has put $100 million into Payward, the parent company behind the Kraken cryptocurrency exchange, as part of an expansion push into tokenized assets. The investment is positioned to connect Nasdaq-listed equities to tokenized trading through Kraken’s platform, while also bringing Nasdaq surveillance tools into Payward’s broader markets infrastructure.

The deal deepens an already existing relationship between Nasdaq and Payward. In March, Nasdaq announced its partnership with Payward to support tokenized equities, and Thursday’s announcement adds both capital and operational integration.

Key takeaways

• Nasdaq’s venture arm invested $100 million in Payward, valuing Kraken’s parent at $21 billion, according to people familiar with the matter cited by Bloomberg.
• Kraken is set to offer tokenized versions of Nasdaq-listed stocks on its own exchange platform.
• Payward will adopt Nasdaq surveillance technology across its venues spanning crypto, equities, tokenized equities, futures, and options.
• The move follows recent European expansion efforts tied to tokenized stocks from other major exchanges, including Deutsche Börse and the London Stock Exchange.
• RWA.xyz data shows tokenized stocks have a distributed value above $2.9 billion, up 7.4% over the past month.

Nasdaq invests in Kraken’s parent to scale tokenized equity offerings

Nasdaq disclosed that its venture unit made the $100 million investment in Payward. Payward is the corporate parent of Kraken, which has been positioning itself as a venue for digital-asset trading and, increasingly, tokenized versions of traditional financial instruments.

Under the terms of the announcement, Kraken will offer tokenized versions of Nasdaq-listed stocks directly on its own platform. The announcement builds on the framework Nasdaq and Payward outlined earlier, including a partnership described by Cointelegraph in March as focused on issuer-centric tokenized equities.

For investors, the practical significance is straightforward: the investment signals that tokenized equities are moving from isolated pilots toward more mainstream exchange distribution channels. Kraken’s customer base and trading infrastructure may become a larger on-ramp for investors seeking 24/5 access to equity-linked products—an approach other venues have also been testing.

Surveillance tech integration across crypto and tokenized markets

Beyond the capital infusion, Nasdaq said Payward will adopt its surveillance technology across multiple market types. According to the announcement, the coverage will extend across Payward’s crypto venues, equities venues, tokenized equity venues, futures, and options.

That matters because surveillance and monitoring are central to how regulated trading ecosystems address market integrity, compliance, and risk management. Rather than treating tokenized equities as a separate back-office experiment, the announcement describes a consolidation of tooling across asset classes and trading formats.

In effect, Nasdaq is leveraging its infrastructure and regulatory experience to support a wider deployment of tokenized products—while Payward gains access to a standardized monitoring layer that can help it scale listings and operations without reinventing compliance workflows for each new category.

What the $21 billion valuation implies for the tokenization race

Bloomberg reported that the investment valued Kraken’s parent, Payward, at $21 billion, citing people familiar with the matter. Nasdaq did not provide that valuation figure in the disclosure itself, but the reported number gives readers a benchmark for how much strategic capital major exchange operators are willing to attach to blockchain-native market infrastructure.

Cointelegraph previously noted that Nasdaq has been pushing for “always-on” markets, which includes exploring regulatory pathways for trading tokenized stocks. In the context of this latest investment, the $21 billion figure suggests tokenization is becoming a core part of Nasdaq’s growth narrative rather than a side project.

Earlier this month, Nasdaq also shared plans to acquire Level Markets as part of its always-on strategy. And a year ago, Nasdaq filed a proposal with the US Securities and Exchange Commission related to tokenization—showing that the current momentum is supported by longer-term regulatory work rather than a sudden shift.

Momentum across major exchanges: Deutsche Börse and London Stock Exchange

Nasdaq’s move arrives amid a wider flurry of exchange activity around tokenized equities.

Earlier this month, Kraken partnered with the London Stock Exchange to launch access to 24/5 trading of tokenized stocks tracking UK equity products, with the initiative expected to start in 2027. In April, Deutsche Börse invested $200 million in Payward, aligning with its own plans to broaden access to blockchain-based securities and tokenized investment products.

Taken together, these investments show that competitive pressure is no longer limited to cryptocurrency trading. Exchange groups are positioning tokenized stocks as part of the next evolution in market access—especially in markets where investors want trading flexibility outside traditional windows.

For market participants, the key question now is not just whether tokenized equities can be issued, but whether liquidity, custody, settlement, and compliance can scale across multiple issuers, venues, and jurisdictions without fragmenting the user experience.

How big is the tokenized stocks market today?

Tokenization remains a niche compared with the broader equities market, but growth is visible. Data compiled by RWA.xyz indicates the current distributed value of tokenized stocks is more than $2.9 billion, up 7.4% over the past month.

That metric doesn’t directly measure overall trading volume across all tokenized products, but it provides a useful read on how much capital is currently locked into tokenized stock representations. With Nasdaq’s $100 million bet and broader exchange partnerships around tokenized equities, the next phase to watch is whether distributed value and real trading activity rise in tandem.

As Nasdaq, Kraken, and other exchanges continue to connect tokenized stocks to mainstream trading infrastructure, investors should pay close attention to how quickly tokenized Nasdaq-listed stocks launch on Kraken, how surveillance and compliance integration affects operational rollout, and whether distributed value continues accelerating alongside new listings.

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Crypto exchange Hyperliquid is paying traders 500% a year to hold long oil derivatives. Payouts are hourly as an additional reward atop the price appreciation of oil itself which has regained $100 per barrel.

Of course, if it sounds too good to be true, it probably is. There are no free lunches on Wall Street.

First of all, Hyperliquid offers extreme leverage — up to 20x on Brent oil, for example — so unremarkable, intraday price fluctuations can easily wipe out a portfolio.

Moreover, even unlevered trades on Hyperliquid inherit innumerable financial risks from bugs, hackers, market manipulators, vulnerable technologies, and offshore counterparties.

Still, Brent and WTI oil perpetuals on the crypto exchange printed deeply negative hourly funding rates today, meaning that the short side of the trade is overcrowded and must pay fees to borrow margin exposure from less popular longs.

Traders on the venue are so one-sided that shorts must pay 500% annualized fees to anyone willing to go long.

Of course, many Hyperliquid short-sellers are day traders who incur minimal funding fees during a quick trade of a few minutes or hours. Still, the funding rate mismatch between shorts and longs is incredible.

Although Brent oil is trading below its $126 peak on April 30 as a reward for long-term shorts since that date, longs have been winning recently.

As shorts stare in disbelief at rapidly rising prices, longs not only benefit from leveraged gains but also receive hourly funding payouts.

Oil has rallied 6% today alone, and the world’s most actively traded commodity is 24% more expensive than 30 days ago amid escalating tensions in the tanker straits of Hormuz and Bab el-Mandeb.

Year to date, oil is up 75%.

The Iran war that began in February has kept squeezing seaborne supply and global logistics for millions of barrels that the world burns daily.

Read more: Crypto traders paid 8,700% annualized fees to bet on Anthropic

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Hyperliquid isn’t literally paying from a corporate account

Technically, funding rates on Hyperliquid aren’t an exchange fee. Hyperliquid isn’t generally in the business of discretionary choices about these fees.

Instead, funding fees are algorithmically determined and occur as hourly transfers between traders.

The intention of funding rates is to tug Hyperliquid’s crypto-native perpetual contract for oil back toward the so-called “oracle” price. Oracle data providers attempt to monitor real-world, off-blockchain prices and broadcast that data onto blockchains in a well-formatted, standardized, and reliable way.

When the contract trades cheaply relative to the oracle price, shorts pay longs, and vice versa.

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Hyperliquid News blamed the monthly futures contract roll for today’s particularly egregious funding rates. Writers at the publication opined, “It’s simply due to the roll schedule.”

Specifically, Trade[XYZ] does roll WTI oil from V6 to X6, and Brent from X6 to Z6, between September 8 and September 14.

However, funding rates don’t normally spike this high during futures contracts rolling dates. Given the volatility of oil itself, Hyperliquid’s contracts are particularly popular and one-sided for a variety of reasons this week.

Earlier this year, US exchanges ICE and CME asked Washington to police Hyperliquid’s anonymous oil books, warning the venue could distort the global price.

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Europe’s top securities regulator is urging closer surveillance of how crypto markets are increasingly intertwined with traditional finance, warning that vulnerabilities in digital-asset ecosystems could contribute to wider financial-system shocks.

In a risk monitoring report published Thursday, the European Securities and Markets Authority (ESMA) highlighted the “growing linkage between increasingly vulnerable crypto-asset markets and the broader financial system,” pointing to both new forms of market integration and specific activity it says can amplify contagion risk.

Key takeaways

• ESMA warns crypto-to-traditional finance links may help shocks spread as crypto activity becomes more connected to mainstream market infrastructure.
• Tokenized equities remain small globally but are gaining traction in Europe, potentially changing who participates and how markets are structured.
• DeFi exploits are on ESMA’s radar as another channel through which crypto disruptions could spill into the wider system.
• Prediction markets are flagged as an emerging concern, with particular focus on insider trading, wash trading, and coordinated manipulation.
• The US regulatory fight over prediction markets continues and could ultimately be settled by the US Supreme Court.

Crypto’s growing connection to traditional markets

ESMA’s warning centers on the possibility that vulnerabilities concentrated in crypto markets could be transmitted into the broader financial system—especially as adoption broadens beyond purely crypto-native venues.

The regulator singled out two developments that could deepen these connections: increased interest in tokenized equities and ongoing risks tied to decentralized finance (DeFi).

On tokenized equities, ESMA stressed that their scale is still negligible relative to global stock markets. However, the report argues that even small segments can matter if they begin pulling in new participants, infrastructure, and liquidity pathways that are shared with, or tightly linked to, mainstream markets.

In DeFi, ESMA pointed to the continued occurrence of exploits—an area that can trigger rapid losses, liquidations, and liquidity stress. While ESMA did not claim direct causal links in every case, its broader message was clear: as crypto mechanisms intersect more frequently with traditional systems, risk events may no longer stay contained within crypto.

Prediction markets: harder enforcement, new compliance challenges

Among ESMA’s most notable emerging flags is the growing use of prediction markets. The regulator said concerns could intensify around insider trading and market manipulation, especially when crypto tools are involved.

ESMA’s report indicates that crypto use in prediction-market activity can complicate detection of problematic conduct such as wash trading and coordinated manipulation. The issue is not only who trades, but how activity is routed and recorded—factors that can affect the visibility regulators have into trading intent and coordination.

The warning matters for traders and market operators because enforcement often depends on the practical ability to identify patterns quickly and attribute them to individuals or entities. If crypto mechanics reduce the clarity of market surveillance, regulators may face higher compliance burdens and potentially stricter controls as authorities react.

US jurisdiction battle over event contracts

ESMA’s European concerns arrive as prediction markets in the United States face a separate, but related, regulatory struggle over what rules apply. The core disagreement is whether event contracts are treated as federal derivatives or fall under state gambling frameworks.

According to ESMA’s report context, the Commodity Futures Trading Commission (CFTC) has issued guidance for prediction markets throughout 2026, while defending what it says is its exclusive jurisdiction over federally regulated event contracts.

That position has been tested in court. The CFTC has sued multiple states—including Kentucky, New Mexico, Illinois and Connecticut, and Minnesota—after those authorities attempted to apply state gambling laws to prediction market operators.

ESMA’s warning about manipulation and insider trading sits in the middle of this broader policy tension: if legal categories remain contested, compliance requirements can differ sharply depending on how a court characterizes the underlying instrument.

The dispute could also reach the US Supreme Court. On September 2, New Jersey officials petitioned the court to decide whether states may enforce sports gambling laws against prediction markets registered with the CFTC. The officials cited ongoing litigation across at least 20 states.

Whether the Supreme Court will accept the case remains uncertain, but a ruling—if it occurs—could materially affect how market operators structure products and how regulators allocate oversight authority.

What investors and builders should watch next

ESMA’s report is a reminder that regulators are tracking not only crypto trading activity, but also how crypto-native products could plug into mainstream financial plumbing. The next question for investors and market participants is whether measures meant to protect traditional markets will keep pace with fast-evolving crypto linkages—particularly in areas ESMA highlighted, such as tokenized equities, DeFi exploits, and prediction markets.

As enforcement and jurisdiction battles continue—especially in the US—readers should watch for updates to surveillance expectations, compliance requirements, and how courts ultimately define the legal category of prediction-market contracts.

Cryptocurrency exchange Coinbase partnered with financial platform Moov to bring stablecoin infrastructure to more than 1,000 community banks and credit unions that are part of Moov’s customer base.

The partnership will combine Coinbase’s regulated digital asset infrastructure and Moov’s payments platform to offer stablecoin payment acceptance, settlement and real-time funding, according to a Thursday announcement.

The infrastructure will support use cases such as consumer stablecoin payments, merchant settlement and payouts. It will also offer businesses and merchants access to Coinbase custodial accounts.

Community banks in the US typically have less than $10 billion in total assets and include state chartered institutions as well as savings and loan holding companies.

The announcement comes as some of the largest US banks are experimenting with stablecoin infrastructure. On Wednesday, U.S. Bank, the fifth-largest commercial bank in the US, completed a live cross-border payment using its proprietary USBDC stablecoin on the Stellar blockchain. 

Earlier this month, 21 financial institutions, including Bank of America, Citi, Goldman Sachs, Deutsche Bank and UBS, announced plans to form a company to issue stablecoins, including a US dollar-denominated stablecoin in the first half of 2027. 

Non-bank competitors are entering the stablecoin niche. In August, Western Union partnered with stablecoin infrastructure provider Rain to launch a digital wallet and Visa-branded card that enables users to hold and spend a US dollar-backed stablecoin.

Related: Mastercard, Borderless test shared identity checks for stablecoin transfers

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