Arbitrum's $71M ETH Cleared for Aave Transfer While North Korea Terrorism Creditors Keep Legal Grip - Blockonomi

by · Blockonomi

TLDR:

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  • Judge Garnett modified the restraining notice, allowing 30,766 ETH worth $71M to move from Arbitrum to Aave LLC.
  • Aave agreed to be bound by the restraining notice, meaning terrorism creditors’ claims survive the fund transfer.
  • Arbitrum delegates approved the ETH release with 182.2M ARB tokens, representing nearly 91% of total voting power.
  • The three North Korea terrorism judgments carry a combined face value exceeding $877M before post-judgment interest accrues.

A Manhattan federal judge has cleared the way for Arbitrum DAO to transfer 30,766 ETH, worth roughly $71 million, to Aave LLC following the April Kelp DAO exploit.

Judge Grants Partial Relief to Arbitrum DAO

Judge Margaret Garnett of the Southern District of New York issued a two-page order on Friday. The order modified a restraining notice that had locked the ETH inside Arbitrum DAO since May 1. The modification permits an onchain governance vote to send the frozen ether to an Aave-controlled wallet.

The ruling followed an emergency motion filed by Aave through Morrison Cohen LLP earlier that week. Aave had asked the court to vacate the restraining notice entirely.

Alternatively, Aave requested the plaintiffs post a bond of at least $300 million. Judge Garnett declined both requests, choosing a middle path instead.

The order also resolved a pressing concern among Arbitrum’s delegate base. Judge Garnett clarified that “any party initiating that on-chain transaction, voting with regard to that on-chain transaction, or participating in the on-chain transfer of assets to Aave LLC shall not be in violation of the Restraining Notice.”

Arbitrum delegates had already voted to approve the release on Thursday, with 182.2 million ARB tokens in favor, representing roughly 91% of voting power.

Terrorism Creditors Retain Legal Claim Over the Funds

Despite the transfer being approved, the legal dispute over the ETH is far from over. Under the order’s third paragraph, Aave LLC agreed to be bound by the restraining notice as though it had been served directly. That means the funds remain legally encumbered once they reach Aave’s wallet.

Aave founder Stani Kulechov pushed back strongly on the creditors’ position, stating publicly: “These funds belong to the affected users they were stolen from, full stop.”

However, the court did not vacate the restraining notice as Aave had requested. The plaintiffs, represented by Gerstein Harrow LLP, are terrorism judgment creditors seeking to attach the ETH as North Korean-linked property.

Their legal theory rests on the Foreign Sovereign Immunities Act and the Terrorism Risk Insurance Act. The restraining notice names Lazarus Group and APT-38 as DPRK instrumentalities, citing LayerZero’s attribution of the Kelp DAO bridge breach.

Three underlying judgments — Kim v. DPRK, Kaplan v. DPRK, and Calderon-Cardona v. DPRK — carry a combined face value exceeding $877 million before post-judgment interest.

Transfer Forms Part of a Larger DeFi Recovery Effort

The 30,766 ETH is the single largest contribution to DeFi United, a cross-protocol recovery effort. The initiative has raised over $320 million to restore rsETH’s economic backing after the $292 million Kelp DAO exploit in April.

Other major contributions include 30,000 ETH from Consensys and Joseph Lubin and a 30,000 ETH loan from Mantle. Aave also liquidated the attacker’s remaining rsETH positions earlier this week as part of the broader effort.

Gerstein Harrow has pursued a wider strategy of attaching North Korea-linked crypto assets across DeFi platforms.

A separate January lawsuit targeted Railgun DAO and Digital Currency Group over alleged laundering of proceeds from prior North Korean cyberattacks, including the $1.5 billion Bybit exploit. The court has not yet scheduled a hearing to resolve who holds the stronger legal claim to the frozen ETH.

 

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