Aave Challenges Court Order Seeking to Freeze $71M in Stolen ETH for Victims

Aave Moves to Unfreeze $71M in Stolen ETH for Victim Restitution

Aave has filed an emergency motion to release 30,765 ETH frozen by Arbitrum’s Security Council, arguing that the funds belong to victims of the April 18 exploit. The company contends that the seized assets, valued at approximately $71 million, should not be frozen for outside claims before restitution is made to affected users.

Court Order Targets Frozen Funds

The restraining notice was served on the Arbitrum DAO on May 1 and seeks to seize the frozen ETH. Aave has requested an expedited hearing and a temporary vacatur, asserting that the recovered assets were designated for user restitution. The motion challenges the legal basis for the seizure, arguing that stolen assets do not become attachable property simply because a thief briefly held them.

Timeline of the Kelp DAO Exploit and Recovery Efforts

The legal dispute stems from the April 18 attack on Kelp DAO’s LayerZero bridge, where the Lazarus Group stole approximately 116,500 rsETH. Three days later, on April 21, Arbitrum’s Security Council used its 9-of-12 emergency powers to move 30,765 ETH without the attacker’s key, designating it for a recovery pool. Aave’s April 24 funding update estimated the original backing hole at 163,183 ETH. Through a combination of Kelp’s freeze, Arbitrum’s action, and expected liquidations on Aave, the coalition closed about 52.9% of that gap.

DeFi United assembled over $300 million in commitments to cover the remaining shortfall. Mantle contributed a credit facility of up to 30,000 ETH, while Aave requested 25,000 ETH from its treasury. The restraining notice, approved by a court in the Southern District of New York, targeted the frozen funds, raising questions about the legal justification for the seizure.

Aave’s Legal Arguments Against the Restraining Order

Aave’s motion argues that stolen assets do not become a thief’s lawful property because the thief held them briefly, and that the Arbitrum DAO is not a juridical entity capable of service.

The second argument rests on already-contested legal ground, as US courts have shown willingness to treat DAOs as general partnerships or suable collectives. Earlier cases involving bZx, Compound, and Lido DAO have set precedents for this approach. Travers Smith’s analysis of the Kelp episode noted that reachability centers on governance structure and demonstrated control, with Arbitrum’s exposure rooted in its documented, exercised emergency-action mechanism.

Governance Concerns and Legal Exposure

Arbitrum’s forum delegates had already raised questions about indemnification, defense-cost advancement, and litigation exposure before Aave filed its motion. This anxiety predates the court filing and highlights the broader implications for protocols that use emergency recovery powers. Every protocol that establishes and exercises such powers also builds documented control, creating potential legal vulnerabilities.

Service Plan and Legal Strategy

Aave’s service plan included posting on Arbitrum’s governance forum and mailing copies to the legal entities behind the Arbitrum DAO, Security Council members, and large ARB holders. The company warned that noncompliance could result in legal consequences for governance actors.