A U.S. federal judge has cleared the way for Arbitrum DAO to transfer roughly $71 million worth of frozen Ethereum to Aave, marking a major step in one of the crypto industry’s largest coordinated recovery efforts this year.
The ruling, issued by Judge Margaret Garnett in Manhattan’s Southern District of New York, modifies an earlier restraining notice that froze the assets after claims they were connected to North Korea’s Lazarus Group.
Key Takeaways
- Court approved transfer of about $71M in Ethereum linked to a North Korea-related exploit.
- Funds were frozen after a $230M DeFi hack involving Kelp DAO’s rsETH system.
- ETH will move to Aave for recovery, but remains under legal restrictions.
- Aave says the assets belong to victims, not attackers.
- The case raises legal questions around DeFi recovery and DAO governance.
Judge Opens Path for Recovery Vote
The case stems from the April 18 exploit involving Kelp DAO’s rsETH infrastructure, where attackers manipulated a cross-chain mechanism and drained approximately $230 million in Ethereum-linked assets from the Aave ecosystem. A portion of those funds, around 30,765 ETH valued near $71 million, was later frozen on Arbitrum after members of the DeFi community intercepted the assets before they could be fully moved.
The court’s modification now permits Arbitrum governance participants to proceed with an on-chain vote authorizing the transfer of the frozen ETH to Aave’s recovery wallet.
Importantly, the order also shields delegates and governance participants from legal exposure related to the transfer itself. That protection became a key issue after concerns emerged that DAO voters or contributors could face liability for interacting with assets tied to an active court dispute.
Still, the ruling does not fully settle ownership of the funds.
The restraining notice remains attached to the assets even after transfer, meaning Aave cannot freely deploy or distribute the ETH without potential future legal consequences if the court later sides with plaintiffs seeking damages from North Korea-linked cyberattacks.
Aave Pushes Back Against North Korea Claims
Aave had filed an emergency motion asking the court to lift the freeze, arguing the assets belonged to innocent protocol users rather than the attackers accused of carrying out the exploit.
The legal dispute intensified after attorneys representing families with unpaid terrorism judgments against North Korea claimed the funds should be treated as North Korean property because the Lazarus Group allegedly controlled them during the hack.
Aave rejected that interpretation, arguing that stolen assets do not legally become the property of a thief simply because they passed through the attacker’s wallets.
The company also warned that allowing such seizures could create dangerous legal uncertainty for future DeFi recovery operations, especially in cases where communities move quickly to freeze stolen funds before hackers can cash out.
Final thoughts
The case is now being closely watched across the crypto industry because it touches several unresolved legal questions surrounding decentralized governance, asset recovery, and liability during protocol emergencies.
For now, the court’s decision gives Aave and the broader DeFi recovery coalition room to continue rebuilding. But the remaining legal claims mean the fight over the frozen Ethereum is far from over.
