A federal judge in the Southern District of New York, Margaret Garnett, has approved the transfer of $71 million worth of Ether held by the Arbitrum DAO to the decentralized finance platform Aave. This decision marks a critical step in the recovery process following a North Korea-linked cyberattack that shook the ecosystem.
Court decision and legal process
The court’s ruling modified an earlier injunction that had frozen Arbitrum DAO’s reserve assets. Under the new decision, the DAO can now move the Ether to a digital wallet managed by Aave LLC, provided the community approves via an on-chain governance vote. In addition, the court made it clear that no party involved in the transfer could be held liable for violating the existing asset freeze order.
Despite the green light, the ruling still protects the legal rights of terrorism victims who suffered losses in the attack. As a result, transferred assets cannot yet be freely used. If the final judgment favors the victims, Aave must return the transferred funds accordingly.
The court underlined that any assets moved through a community on-chain vote will shield involved parties from potential legal violations, while the victims’ claims remain intact.
Impact of North Korea-linked cyberattack
Following last month’s rsETH exploit, attributed to North Korean operations, the Arbitrum community supported moving funds to Aave as part of a broader recovery plan developed by Aave. The snapshot vote showed strong backing, but a final and binding on-chain governance vote is still required to complete the transfer.
Just last week, Aave urgently petitioned the New York court to lift the freeze that had kept Arbitrum DAO from distributing the assets to Kelp DAO hack victims. This legal restriction was imposed through the Gerstein Harrow law firm, which represents families holding $877 million in unpaid terrorism judgments against North Korea, and alleges that the stolen assets belong to its clients.
Aave countered that those holding the stolen funds cannot gain legal ownership and argued that claims pointing to North Korea as the culprit are mostly rooted in online speculation. The company added that upholding the freeze could jeopardize similar DeFi recovery efforts and warned it might encourage bad actors to exploit such legal uncertainties.
Major deficit in rsETH after Kelp attack
The Kelp DAO incident left a significant gap in rsETH reserves. After the exploit, 116,500 rsETH were drained from Ethereum, but equivalent assets were not destroyed at their source. Currently, only 40,373 rsETH remain in the adapter contract, while the total support needed has risen to 152,577 units. As a result, the deficit stands at roughly 76,127 rsETH, equal to $174.5 million at recent price levels.
The 30,765 ETH under Arbitrum’s management represents an important foundation for addressing the shortfall. The community believes that transferring these funds could at least partially close the rsETH gap and help stabilize Arbitrum and the wider DeFi market.
Community members argue that unlocking the frozen funds is meaningful for restoring user trust and minimizing broader market fallout.
