Aave Seeks Emergency Court Order to Unfreeze $71M in Stolen Crypto Before Transfer to Victims' Fund

Emergency Hearing Could Decide Fate of $71 Million in Stolen Crypto

An emergency hearing scheduled for Wednesday in a New York federal court will determine whether a restraining order freezing $71 million in cryptocurrency will be lifted. The funds, recovered from North Korean hackers last month, are at the center of a legal dispute that threatens to disrupt the transfer of assets to a victims' recovery fund.

Background: The April 18 Hack and Recovery Efforts

The legal battle stems from an April 18 exploit in which North Korean hackers stole nearly $300 million in rsETH from the Kelp DAO protocol. The hackers used the stolen crypto as collateral to borrow liquid assets on Aave, the largest decentralized finance (DeFi) protocol. Several organizations, including Arbitrum DAO, successfully froze portions of the stolen funds before they could be laundered.

Arbitrum DAO froze approximately $71 million in crypto, which was intended to be sent to a recovery fund for hack victims. However, the plan has been complicated by claims from individuals seeking compensation for past damages allegedly caused by North Korea.

Victims' Claim and Restraining Order

On Friday, attorneys for the claimants served Arbitrum DAO with a restraining order, prohibiting the transfer of any "property interests of the Democratic People’s Republic of Korea." Among the claimants are Han Kim and Yong Kim, relatives of a South Korean minister abducted and presumably killed by North Korean agents in 2000. In 2015, they secured a $330 million judgment against North Korea in a U.S. federal court, as stated in the restraining order.

Aave Steps In, Calls Restraining Order 'Catastrophic'

On Monday, Aave LLC filed an emergency request to the court, urging the judge to void the restraining order. The company argued that lifting the freeze is critical to avoiding "catastrophic injuries" to the Aave Protocol, its users, and the broader DeFi ecosystem.

"We are rejecting the baseless claim that stolen property title belongs to the thief," said Stani Kulechov, founder of Aave, in a post on X. "We will keep fighting for the DeFi community."

Aave’s legal filing stated that the claimants’ argument is based on "conjecture from posts on the internet" that North Korea was responsible for the theft. The company emphasized that the frozen assets do not belong to North Korea or any affiliated entities but instead belong to the users of the Aave Protocol.

Arbitrum DAO Vote and Upcoming Deadline

Arbitrum DAO began voting on Thursday to transfer the frozen assets to the recovery fund. The voting period ends on May 7, one day after the emergency hearing. Aave warned that if the assets remain frozen, the entire DeFi ecosystem could face destabilization.

Aave also argued that maintaining the freeze would create "unconscionable incentives," stating: "No one would dare to stop a thief from stealing funds or property if the reward for being a Good Samaritan was a legal battle."

The Arbitrum Foundation acknowledged the situation in a statement on its governance forum on Monday, though the statement did not provide further details on the ongoing dispute.

What’s at Stake?

The outcome of the emergency hearing could set a precedent for how recovered stolen crypto assets are handled in DeFi protocols. Aave and the broader DeFi community argue that allowing claimants to freeze assets based on unrelated legal judgments could undermine trust in the ecosystem and discourage efforts to recover stolen funds in the future.