Judge’s Order Sets Recovery in Motion
A federal judge in Manhattan has cleared a critical legal hurdle for Aave and its partners to recover $71 million in ether frozen after the high-profile rsETH exploit. Judge Margaret Garnett’s two-page order, issued on Friday, specifically allows the transfer of 30,765 ETH from Arbitrum to a wallet managed by Aave LLC, modifying a previous restraining notice that had blocked any movement of these funds. The order also shields those involved in the transfer from liability under the prior freeze, but it does not grant Aave free rein—any use of the funds remains subject to further court decisions, as terrorism victims’ claims are preserved.
The ruling follows an emergency motion filed by Aave last week, which sought to vacate the restraining notice imposed on Arbitrum DAO in early May. The legal freeze was originally triggered by claims that the ether constitutes property belonging to North Korea, due to attribution of the exploit to the Lazarus Group—a hacking collective linked to the regime.
Sentiment Vote Shows Overwhelming Support
While the legal battle played out in New York, Arbitrum’s governance process advanced on a parallel track. Last Thursday, Arbitrum DAO passed a governance vote approving the release of roughly $70 million in frozen ETH for relief efforts tied to the Kelp DAO rsETH exploit. The proposal—co-authored by representatives from Aave Labs, KelpDAO, LayerZero, EtherFi, and Compound—garnered 182.2 million votes in favor, representing over 90% support with negligible opposition.
This decisive outcome followed an earlier non-binding “sentiment check,” which closed Friday afternoon Hong Kong time and also saw more than 90% of delegates backing the plan to unfreeze 30,765 ETH. However, both votes were conducted off-chain and do not themselves move any funds or alter protocol rules. Actual release of the ether will require a separate on-chain vote under Arbitrum’s Constitutional Improvement Protocol framework.
On paper, community consensus looks overwhelming—but real-world constraints remain.
See Also
$71 Million ETH Faces Legal Crossfire
The underlying exploit that set this chain of events in motion occurred on April 18. Attackers exploited a flaw in Kelp’s LayerZero-powered bridge to mint 116,500 rsETH on Ethereum without burning tokens on the source chain—a discrepancy worth about $174.5 million at current prices. Using these unbacked tokens as collateral on Aave, they drained approximately $230 million in ETH from protocol users before intervention by Arbitrum’s Security Council froze 30,765 ETH.
Despite Judge Garnett’s recent order permitting movement of the funds pending governance approval, legal uncertainty persists. Attorney Charles Gerstein represents families holding around $877 million in unpaid terrorism judgments against North Korea and has argued that these frozen assets should be seized as compensation. The court order explicitly preserves their claim: even if transferred to Aave’s control for user compensation efforts, the ether cannot be freely used until legal ownership is resolved.
Decrypt reports that if future rulings favor these claimants, Aave may be compelled to hand over all or part of the recovered funds.
Transfer Hinges on On-Chain Governance
Arbitrum’s next steps depend on formal approval through an on-chain governance vote—a process that ensures tokenholders themselves authorize any major protocol changes or large fund movements. The draft proposal includes indemnification protections for key participants such as Offchain Labs and Security Council members; however, these safeguards only become effective if adopted via a successful Constitutional Arbitrum Improvement Protocol (AIP) vote.
The approved proposal specifies that any released ether will be sent to a multi-signature Gnosis Safe wallet controlled jointly by representatives from Aave, KelpDAO, EtherFi, and Certora. The funds are earmarked exclusively for compensating users affected by the rsETH exploit—a point repeatedly emphasized throughout governance discussions and legal filings alike.
Yet with competing claims from terrorism victims still unresolved and ongoing scrutiny from U.S. lawmakers—including a Senate Banking Committee markup hearing for the Clarity Act scheduled for March 14—the final outcome remains deeply uncertain.
The Summary
- •On June 7, Judge Margaret Garnett authorized transfer of $71 million (30,765 ETH) from Arbitrum to Aave LLC after the rsETH exploit.
- •Over 90% of Arbitrum DAO delegates supported releasing 30,765 ETH in a non-binding vote following the April 18, 2024 exploit.
- •Actual transfer of funds still requires a binding onchain governance vote and remains subject to ongoing legal claims by terrorism victims.
Areas to watch closely
If the Arbitrum DAO proceeds with an onchain governance vote to transfer the $71 million in frozen ETH to Aave LLC, as permitted by Judge Margaret Garnett’s order, the funds can move but remain subject to a pending legal claim from terrorism victims’ attorneys, meaning Aave cannot use them freely unless the court rules in its favor; the timing of this onchain vote has not yet been confirmed.