A federal judge in Manhattan has allowed Arbitrum DAO to move $71 million in frozen ether to Aave, paving the way for efforts to recover the DeFi protocol after an exploit linked to North Korea.
Judge Margaret Garnett of the Southern District of New York issued order on Friday, modifying the injunction notice that locked up assets within Arbitrum DAO. The amendment allows a vote on onchain governance to send funds to a wallet controlled by Aave LLC and expressly protects anyone participating in the transfer from being held in violation of the freeze.
The order still retains the terror victims’ legal claim to the funds, meaning Aave cannot freely use the funds and could be forced to hand them over if a court ultimately rules in favor of the terror victims.
The judge allows Arbitrum to transfer the funds to Aave. Source: Courtroom
The decision comes after Arbitrum delegates showed strong support for the move by voting Snapshot off-chain as part of Aave’s broader recovery plan following last month’s North Korea-linked rsETH exploit. Each actual transfer still requires a separate binding vote on chain governance.
Related: Arbitrum votes to release $71 million in frozen Kelp exploit ETH to be adopted
Aave is asking the court to lift the freezing of funds
Last week, Aave filed an emergency motion in a New York court seeking to vacate the injunction notice that blocked Arbitrum DAO from transferring funds to victims of the Kelp DAO exploit. The notice was filed by Gerstein Harrow LLP, which represents families holding $877 million in unpaid North Korean terrorism judgments and claims the funds belong to its clients because they were stolen by North Korean hackers during an April 18 hack.
Aave hit back, arguing that the thief does not acquire legal ownership of the stolen property and that attributing the hack to North Korea relies on little more than internet speculation. It also warned that if the court upheld the curb notice, it could deter future DeFi recovery efforts and give bad actors a roadmap to exploit the legal uncertainty after the hack.
Gerstein Harrow has already made similar claims. In January, they sued Railgun DAO, alleging that the privacy protocol was used to launder the proceeds of previous North Korean hacks, including the $1.5 billion Bybit exploit.
Related: Aave Deposits Plunge $15B As Kelp Exploit Fuels DeFi Lender’s Run
Kelp exploit leaves $174 million hole in rsETH support
The Kelp DAO exploit left rsETH support with a significant flaw. The hack caused 116,500 rsETH to be released on Ethereum without a proper burn on the source side, leaving only 40,373 rsETH in the adapter contract against the confirmed support of 152,577, a gap of roughly 76,127 rsETH, worth about $174.5 million at current prices.
The 30,765 ETH frozen by Arbitrum was marked as a significant step towards closing the gap, with proponents arguing that even a partial restoration of rsETH support would help stabilize conditions for users across Arbitrum and the wider DeFi ecosystem.
Magazine: 53 DeFi projects infiltrated, 50 million NEO tokens could be ‘returned’: Asia Express
