One of DeFi's largest platforms, Aave, is locked in a legal fight over $71 million in frozen Ethereum. The company has asked a U.S. court to release the funds, arguing they belong to users who lost money in an exploit — not to creditors pursuing terrorism-related judgments against North Korea.
The KelpDAO Exploit and Freeze
On April 20, Arbitrum's Security Council froze 30,766 ETH tied to an attacker from a major exploit linked to KelpDAO. While recovering stolen crypto is rare, this freeze was initially seen as a success. But on May 1, lawyers representing U.S. families with claims against North Korea obtained a temporary restraining order on the same funds.
These claimants seek to recover part of $877 million in unpaid court judgments. They argue the hack may involve Lazarus Group, North Korea's state-sponsored hackers, so the frozen assets should be treated as state property to settle those debts.
Aave's Three Demands
Aave LLC filed an emergency motion in the Southern District of New York on Monday, asking Judge Margaret M. Garnett to vacate the restraining notice on Arbitrum DAO. The 29-page filing, prepared by Morrison Cohen LLP, lays out three demands: lift the notice immediately; schedule an emergency hearing and suspend the freeze in the meantime; or if the freeze stays, require plaintiffs to post a cash bond of at least $300 million to cover harm caused.
Aave founder Stani Kulechov said: "A thief does not own what he steals. These funds belong to the affected users, they were stolen from."
Stakes for DeFi
On one side, DeFi platforms like Aave want to return funds through user-first recovery efforts like "DeFi United." On the other side, plaintiffs use U.S. courts to claim the same assets under existing legal judgments. Aave warns that keeping the funds frozen could hurt users and disrupt broader DeFi stability. If Aave wins, it could strengthen the case for protecting victims in future DeFi hacks.