Aave challenges $71M ETH freeze in New York legal dispute

Aave has filed an emergency motion in a New York court to lift a restraining notice that is blocking the transfer of 30,766 ETH earmarked for victims of the Kelp DAO exploit.

According to a filing submitted in a New York district court, Aave challenged a notice issued by Gerstein Harrow LLP that seeks to stop Arbitrum DAO from releasing the Ether, which is currently under governance control following the April 18 breach.

Gerstein Harrow LLP served the notice on Friday, arguing that its clients are owed more than $877 million in default judgments against North Korea and that the alleged involvement of a North Korean hacking group in the exploit gives them a legal claim over the frozen assets.

In its emergency motion, Aave argued that stolen assets do not become the lawful property of the thief, adding that the law firm’s position “defies logic, common sense and the law.”

The filing also noted that any link to North Korea remains unproven and is based on suspicion rather than confirmed attribution.

Recovery plan faces legal roadblock

Arbitrum’s Security Council had previously seized 30,766 ETH from an address tied to the exploit and moved the funds into a DAO-controlled wallet, according to an April 21 update from Arbitrum.

Any transfer now depends on a governance vote, which is scheduled to conclude on May 7.

A proposal backed by Aave Labs, Kelp DAO, LayerZero, EtherFi, and Compound has asked the DAO to release the funds into “DeFi United,” a coordinated recovery effort aimed at restoring rsETH backing and reducing bad debt across lending platforms.

The proposal states that more than 102,000 ETH has already been pledged toward covering a 163,200 ETH shortfall.

The Kelp DAO exploit, which drained 116,500 rsETH valued at about $292 million, has been linked in preliminary findings by LayerZero to North Korea’s Lazarus Group, though the attribution has not been formally confirmed.

Aave warns of systemic impact if funds remain frozen

In its court filing, Aave warned that upholding the restraining notice could disrupt ongoing recovery efforts tied to North Korea-related hacks by exposing them to competing legal claims.

The protocol argued that such actions could also encourage attackers to target DeFi systems if stolen assets become harder to recover.

Lawyers representing Aave said the continued freeze is causing “irreparable harm” to users and the wider DeFi ecosystem, adding that the damage cannot be resolved through monetary compensation.

They stated that failure to release the funds could destabilize lending markets if affected users are unable to meet collateral obligations tied to their positions.

Addressing the law firm’s claim directly, Aave’s legal team said the case relies on “conjecture from posts on the internet” to argue that North Korea gained ownership of the assets by briefly controlling them during the exploit.

The filing maintains that the Ether belongs to Aave users who lost funds in the attack, not to any external actor.

If the court declines to lift the notice immediately, Aave has asked that Gerstein Harrow LLP be required to post a $300 million bond to maintain the restriction while the case proceeds.

As of publication time, the court had not yet ruled on the motion, and no hearing date had been scheduled.

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