Court Lets Arbitrum DAO Transfer $71M in ETH Tied to North Korea Hack to Aave

A Manhattan federal judge has allowed Arbitrum DAO to move $71 million in frozen Ether to Aave, clearing the path for the DeFi protocol’s recovery effort following a North Korea-linked exploit.

Judge Margaret Garnett of the Southern District of New York issued the order on Friday, modifying a restraining notice that had locked the assets inside Arbitrum DAO. The modification permits an onchain governance vote to send the funds to a wallet controlled by Aave LLC, and explicitly protects anyone who participates in the transfer from being held in violation of the freeze.

The order still keeps the terrorism victims’ legal claim on the funds, meaning Aave can’t use the funds freely and could be forced to hand them over if the court ultimately rules in the terrorism victims’ favor.

Judge allows Arbitrum to move funds to Aave. Source: Courtlistener

The decision came after Arbitrum delegates showed strong support for the move through an off-chain Snapshot vote as part of Aave’s broader recovery plan following last month’s North Korea-linked rsETH exploit. Any actual transfer still requires a separate binding onchain governance vote.

Related: Arbitrum vote to release $71M in frozen Kelp exploit ETH set to pass

Aave asks court to lift freeze on funds

Last week, Aave filed an emergency motion in a New York court seeking to vacate a restraining notice that had blocked Arbitrum DAO from transferring the funds to victims of the Kelp DAO exploit. The notice was served by Gerstein Harrow LLP, which represents families holding $877 million in unpaid terrorism judgments against North Korea and claims the funds belong to its clients because North Korean hackers stole them during the April 18 hack.

Aave pushed back hard, arguing that a thief doesn’t gain lawful ownership of stolen property and that attributing the hack to North Korea relies on little more than internet speculation. It also warned that if the court upholds the restraining notice, it could deter future DeFi recovery efforts and give bad actors a roadmap to exploit legal uncertainty following hacks.

Gerstein Harrow has previously pursued similar claims. In January, they sued Railgun DAO, alleging the privacy protocol was used to launder proceeds from prior North Korean hacks, including the $1.5 billion Bybit exploit.

Related: Aave deposits fall by $15B as Kelp exploit sparks flight from DeFi lender

Kelp exploit leaves $174 million hole in rsETH backing

The Kelp DAO exploit left rsETH’s backing with a significant shortfall. The hack caused 116,500 rsETH to be released on Ethereum without a corresponding burn on the source side, leaving only 40,373 rsETH in the adapter contract against confirmed backing for 152,577, a gap of roughly 76,127 rsETH, worth around $174.5 million at current prices.

The 30,765 ETH frozen by Arbitrum has been flagged as a meaningful step toward closing that gap, with proponents arguing that even partial restoration of rsETH’s backing would help stabilize conditions for users across Arbitrum and the wider DeFi ecosystem.

Magazine: 53 DeFi projects infiltrated, 50M NEO tokens could be ‘given back’: Asia Express