On Thursday, a governance vote by ArbitrumDAO approved the release of approximately $70 million in frozen ETH to aid victims of the Kelp DAO rsETH exploit. However, a U.S. federal court order may still prevent this transfer.
The proposal, drafted collaboratively by Aave Labs, KelpDAO, LayerZero, EtherFi, and Compound, received 182.2 million votes in favor—around 90.96%—with minimal opposition. Last month, the Arbitrum Security Council froze 30,765.67 ETH following an exploit of a vulnerability in Kelp’s LayerZero-enabled cross-chain bridge, which led to the release of 116,500 rsETH on Ethereum without a corresponding burn on the source chain.
Subsequently, this unbacked rsETH was used as collateral on Aave, resulting in approximately $230 million in ETH belonging to protocol users being drained. The vote now determines the destination for these funds, approving their transfer to a Gnosis Safe controlled by representatives from Aave, KelpDAO, EtherFi, and Certora, dedicated exclusively to the rsETH recovery effort.
However, execution is clouded by a restraining notice filed on May 1 in the Southern District of New York. Plaintiffs, holding decades-old unpaid judgments against North Korea and attributing the hack to the Lazarus Group, received court permission to serve this notice on Arbitrum DAO, asserting that the frozen ETH constitutes DPRK property subject to seizure.
In response, Aave LLC has requested the court vacate this restraining notice as baseless. If it remains, they argue plaintiffs should post at least a $300 million bond due to immediate and irreparable harm caused by the freeze. Yuriy Brisov, partner at Digital & Analogue Partners, explained to Decrypt that while technically possible, executing despite the notice could lead to contempt charges for those involved.
Brisov emphasized that the restraining notice functions as an injunction per New York Court of Appeals precedent in Aspen Industries v. Marine Midland Bank, with refusal leading to contempt under CPLR §5251. Although private keys can still sign, every person identifiable in the execution chain has been served the notice, making any movement of ETH a potential contempt act.
The indemnity does not cover contempt liability, posing the realistic question of whether anyone in the U.S. would risk this transfer. Aave is thus challenging the freeze on its merits rather than arguing for blockchain immunity from U.S. law. Brisov noted that while a favorable ruling could allow this specific transfer, it wouldn’t broadly negate future claims since the Security Council’s April 21 action established control points.
Lifting the freeze would only remove an immediate obstacle but doesn’t ensure execution due to ongoing legal risks and governance procedures, as Alice Frei of OMI pointed out. The plaintiffs may continue contesting whether the ETH is attachable property; thus, even a win for Aave won’t guarantee unhindered execution.
The Kelp DAO exploit led to a DeFi United recovery effort raising over $300 million. The frozen 30,765 ETH on Arbitrum addresses part of an estimated 76,127 rsETH shortfall, with the proposal itself incurring no new cost to the DAO.