Why Liquid Network (Bitcoin layer‑2) is used

Liquid supports natively the issuance of digital assets both standard and regulated assets.Why NexPlace uses Liquid for regulated assets

For regulated markets workflows, the network’s characteristics matter. Liquid supports features that are useful for regulated instruments in terms of:

1. Stability

Liquid’s governance model is based on a strong federated consensus. This model mirrors long-standing structures in traditional financial infrastructure, such as stock exchanges, clearing houses, depositaries, and central banks, where multiple independent entities collectively validate and oversee operations rather than relying on a single operator.

Unlike many blockchain networks, Liquid does not rely on equity-like “staking tokens” to power consensus. Its stability does not depend on the financial health of a foundation or the market performance of a native token.

In each Elements implementation, independent entities can form a federation under clearly defined and transparent rules. These federations are composed of multiple separate organizations that must collectively validate transactions, preventing unilateral control. This flexibility allows networks to be tailored to specific regulatory or business environments while maintaining distributed governance and minimizing counterparty risk for users.

Given that the Liquid Network shares approximately 85% of its codebase with Bitcoin, it inherits one of the most extensively reviewed and battle-tested codebases in the industry. This contributes to a lower and more predictable total cost of ownership compared to more complex and less proven infrastructures.

Liquid’s features have been built following Gall’s principle — the idea that successful complex systems evolve from simple systems that already work. Over an eight-year development period, Liquid was designed to start from a robust and minimal foundation, incrementally adding functionality rather than introducing fragile, over-engineered complexity that requires frequent disruptive upgrades.

Liquid uses the UTXO model, meaning transaction validity is self-contained within each transaction. Conflicting transactions are straightforward to identify and reject. While in some blockchain systems invalid transactions can be confirmed despite failing certain checks, on Liquid — as on Bitcoin — invalid transactions are never confirmed.

2. Compliance

Regulation in traditional finance is inherently centralized. On Liquid, compliance is enforced through the Asset Management Platform (AMP), a co-signing service that ensures regulated assets can only be transferred in accordance with policies defined by their issuers.

AMP enforces compliance rules such as KYC/AML and OFAC requirements and also enables corporate actions, including reissuance, stock splits, dividend distributions, coupon payments, and voting.

An AMP ID serves as the on-chain identity for any individual or company holding regulated assets. From this identity, Liquid addresses can be derived. A single AMP ID generated through a regulated entity can enable participation in digital global capital markets.

AMP also enables regulated assets to be held in self-custody, provided that the receiving AMP ID has been approved by the issuer of the asset.

Because Liquid transactions are confidential by default, transaction details are not publicly visible. However, AMP maintains a record of unblinded transactions related to regulated assets. These can be selectively disclosed by the issuer to authorized parties using an unblinding key, enabling regulatory transparency while preserving confidentiality from external observers.

3. Security

In the typical trade-offs of blockchain design, Liquid prioritizes conservative security and trust minimization over maximal expressivity or developer convenience, which are common in other chains.

Liquid is stateless and follows the UTXO model, meaning there is no shared global state that can introduce reentrancy vulnerabilities. As a result, common smart contract exploits such as reentrancy attacks are structurally avoided.

The UTXO model significantly reduces Miner Extractable Value (MEV) risk. This risk is further mitigated by Confidential Transactions, which prevent transaction amounts and asset types from being publicly visible.

Multisignature functionality is native to Liquid. There is no reliance on highly expressive and complex smart contracts that may introduce systemic risk, such as those that led to incidents like the Parity hack. While audits can be useful, depending entirely on auditors introduces a potential single point of failure. Liquid therefore avoids unnecessary smart contract complexity at the base layer.

Since 2025, Liquid supports formally verifiable smart contracts using the Simplicity programming language. This allows developers to obtain mathematical assurance that contracts will behave as specified, increasing reliability without sacrificing security.

Atomic spends across accounts are natively supported, enabling greater segregation of trust. For example, signing keys can be stored in physically segregated Hardware Security Modules (HSMs) — specialized secure devices designed to safeguard cryptographic keys. Liquid also supports native atomic swaps across different assets and parties.

All transactions are intentionally designed to be easy for signing devices to interpret, avoiding the need for blind signing. Transaction verification can be performed by anyone. A full network node can be run on modest hardware, such as a Raspberry Pi, allowing users to independently verify transactions and blocks.

4. Confidentiality

The UTXO model naturally disaggregates information, making assets, balances, and transaction histories easier to protect using cryptographic techniques.

Zero-knowledge range proofs were implemented on Liquid in 2018 and have operated reliably since. These proofs ensure that transaction amounts and asset types remain hidden from external observers while still being verifiable by the network.

Because confidentiality is implemented at the protocol level, Liquid does not require trusted third parties or external accumulator systems to preserve privacy.

Only the sender and receiver have direct knowledge of the contents of a regulated asset transaction. The issuer additionally has access to a list of unblinded transactions, which can be selectively shared with authorities using an unblinding key when regulatory disclosure is required.

5. Interoperability

Elements implementations can not only be customized across various parameters — such as federation structure, trust assumptions, and regulatory frameworks — but they are also interoperable with one another.

Assets can move between compatible Elements networks and Bitcoin mainnet using atomic swap-like capabilities. This allows different networks to serve distinct regulatory regimes, use cases, or federation trust profiles while still maintaining the ability to transact across ecosystems.

What This Means for You as a User

When using NexPlace, our goal is to provide a seamless experience.

You can trade, hold, and withdraw cryptocurrencies within the platform without needing to interact directly with the Liquid Network or manage any additional technical steps. All infrastructure complexity is abstracted within NexPlace.

For most users, Liquid will never be visible or required.

Liquid becomes relevant only if you choose to move regulated assets into self-custody. These assets settle natively on the Liquid Network, and this experience takes place outside of NexPlace.

If you receive regulated assets in self-custody on Liquid, you should expect to:

• Use a Liquid-compatible wallet (for example, the Blockstream App).

• Generate an AMP ID or Liquid receiving identifier, if required by the issuer.

• Hold a small amount of LBTC in your wallet to pay Liquid network transaction fees.

In short, inside NexPlace the experience remains simple and fully abstracted.
Liquid-specific requirements apply only when interacting with regulated assets outside the platform.