Aave LLC has asked a U.S. court to lift a freeze on about 30,766 ETH, worth roughly 71 million dollars, that Arbitrum DAO set aside for victims of the April 18 KelpDAO exploit.
In an emergency motion filed in the Southern District of New York, the company argues that the May 1 restraining notice on Arbitrum wrongly treats those recovery funds as property that creditors can seize to pay old terrorism cases against North Korea.
How the Arbitrum ETH Ended up in Court
The saga began when a vulnerability in KelpDAO’s rsETH bridge allowed an attacker to drain about $292 million from several DeFi protocols on April 18. Arbitrum’s Security Council then moved quickly on April 20 to freeze 30,766 ETH linked to the exploit, locking the funds in a special wallet that cannot move without a governance vote.
Aave Labs later submitted a proposal to the Arbitrum DAO to send the frozen ETH to “DeFi United,” a recovery fund managed by Aave, KelpDAO, and security firm Certora, so they could restore rsETH’s backing and repay affected users.
The plan attracted broad support in Arbitrum governance and drew more than $ 20 million in additional pledges from partners like LayerZero and the Golem Foundation.
Why a New York Restraining Notice Froze the Funds
On May 1, law firm Gerstein Harrow LLP, which represents plaintiffs with more than $800 million in terrorism judgments against North Korea, served Arbitrum DAO with a restraining notice and related court papers via its governance forum. The documents rely on New York’s special asset-seizure laws and bar Arbitrum from moving the 30,766 ETH while the court considers whether those assets constitute North Korean property.
The plaintiffs say the hacker is likely tied to North Korea’s Lazarus Group, so they argue the frozen ETH should help satisfy their unpaid judgments. However, Aave and other DeFi teams say this view ignores basic property rights and treats stolen crypto as if it legally belongs to the thief rather than the victims.
In its emergency filing, Aave LLC asks the judge to vacate the restraining notice so Arbitrum can proceed with the user recovery plan.
The motion stresses that Arbitrum governance controls the ETH solely to compensate exploit victims and warns that letting outside creditors seize those assets would create a “catastrophic” precedent for future DeFi hacks and rescue efforts.
READ MORE: Bitcoin Cash (BCH) Stalls Below Resistance While Analyst Eyes $1,509 Target
