Osmosis Freezes 22.65 BTC After Nomic Forwarding Bug

Osmosis froze 22.65 BTC after a flaw in Nomic’s forwarding logic allowed false-voucher minting and left the allBTC token partially unbacked. The protocol has paused affected flows while governance considers whether to recover the frozen funds and use community reserves to restore backing.

Osmosis reported that the problematic nBTC was created from false vouchers and that neither the Osmosis chain nor the Inter-Blockchain Communication protocol were compromised. The protocol paused nBTC and allBTC inflows and outflows and suspended minting and redemption for the allBTC pool until the backing gap is resolved.

On-chain researcher Rarma traced the main minting activity to June 25 and noted that 22.65060846 allBTC created during July 17 activity remained unmoved when the trace was published. A security firm characterized the incident as a double-spend on the Nomic bridge.

At the reporting cutoff the allBTC dashboard showed 110.57 allBTC in circulation and 39.84 nBTC listed in the reserve basket. Osmosis estimates the invalid nBTC represents about 36.03% of allBTC’s backing, leaving roughly 70.73 BTC-equivalent of other valid backing. The 22.65 BTC linked to the false vouchers remains frozen and has not been returned to the reserve.

Osmosis intends to ask governance to confiscate the frozen funds and to use Bitcoin held in the community pool to cover the shortfall. Even if the full frozen balance is recovered, an additional roughly 17.19 BTC would be required to restore full parity for allBTC holders. The allBTC contract is administered by Osmosis governance, and a 3-of-6 moderator subDAO can pause the pool or mark a constituent asset as corrupted. Nomic’s custody documentation states reserve disbursals require signatures representing more than 90% of its signatory set’s voting power.

As of Sept. 9 there was no on-chain proposal among the latest 20 submissions to seize the frozen funds or to recapitalize the reserve. Until valid backing is restored, allBTC holders are exposed because claims on the basket exceed the valid BTC-equivalent assets backing it. Redemption at full parity will depend on the outcome of the governance vote and on how much the community pool or other sources contribute to restoring backing. Market activity around Osmosis’s token showed downward pressure after the issue became public.

The public disclosure came more than two months after the apparent exploit activity, triggering a review of forwarding logic and voucher handling across bridge infrastructure. Osmosis maintained that the bug was in Nomic’s forwarding system rather than in the Osmosis chain or IBC and has kept affected functions paused while governance evaluates remedial steps.