Court Lets Arbitrum Move $71M ETH as Legal Freeze Follows

A Manhattan federal judge has authorized the Arbitrum DAO to transfer 30,765 ETH, worth roughly $71 million and linked to a North Korean hack, to the Aave protocol in a ruling that keeps the assets legally frozen.

Judge Margaret Garnett’s order modifies a prior restraining notice to permit an on-chain governance vote for the transfer, according to a court filing published late last week. The decision allows Aave’s recovery effort to proceed on a technical level while preserving a legal claim on the funds from plaintiffs holding judgments against North Korea.

The ruling addresses a May 1 restraining notice from a U.S. law firm that froze the assets, claiming they were tied to the Lazarus Group. The funds originated from a larger $293 million exploit of Kelp DAO in April, where an attacker fraudulently minted rsETH tokens. According to research from Galaxy Digital, Aave's broader recovery effort is now approximately 90% complete.

The decision creates a novel legal precedent, allowing frozen digital assets to be managed within DeFi protocols while a legal battle continues, potentially shaping how courts handle seized crypto for years. For Aave, the immediate recovery remains gapped by the frozen funds, forcing the protocol to borrow capital to cover the shortfall while the case proceeds.

The $293 Million Hack and Recovery

The complex situation began on April 18, 2026, when an attacker exploited Kelp DAO’s LayerZero bridge to mint 116,500 rsETH tokens without backing assets. The attacker then deposited nearly 89,500 of these tokens into Aave V3 as collateral, creating over $190 million in bad debt for the protocol.

A coalition known as DeFi United orchestrated a rapid response. On May 6, the attacker's eight positions on Aave were liquidated after the DAO voted to adjust a price oracle, making the forced liquidation possible. The recovered collateral was moved to a secure multi-signature wallet, but the $71 million portion on the Arbitrum network was quickly frozen by the court order before it could be returned to users.

A Novel Legal Solution

Judge Garnett's ruling provides a path forward by allowing the Arbitrum DAO to vote on transferring the ETH to a wallet controlled by Aave LLC. Crucially, the order states the restraining notice will "follow the funds," meaning they remain legally immobilized upon arrival at Aave. It also shields any DAO members who vote on the proposal from liability under the restraining notice.

This case is part of a broader legal strategy by plaintiffs holding judgments against North Korea to pursue assets linked to the country's state-sponsored hacking groups. In a separate lawsuit, many of the same creditors sued Railgun DAO, a privacy protocol, alleging it was used to launder funds from previous exploits. The legal team argued that once North Korean-controlled funds moved through the protocol, they became targets for collection.

The Aave recovery process is now in its second phase, which includes burning the liquidated rsETH to reduce the inflated supply and restoring the backing of the rsETH bridge. While the court's decision allows the technical recovery to advance, the final resolution for the $71 million in funds now depends on the outcome of the ongoing legal dispute.

This article is for informational purposes only and does not constitute investment advice.