Aave, one of the leading decentralized finance (DeFi) protocols in the crypto sector, has urgently petitioned a federal court in New York. The company is seeking to overturn a freeze order that currently prevents Arbitrum DAO from transferring 30,766 Ether—worth approximately $92 million—to victims of the Kelp attack, an order initiated by the U.S. law firm Gerstein Harrow.
Background and legal proceedings
Last week, the law firm Gerstein Harrow formally notified the Arbitrum DAO, asserting that its clients hold debt judgments worth $877 million secured against North Korea. The firm contends that the Ether in question, believed to be linked to a hacker group associated with the Kelp attack, could be legally claimed as part of the compensation for its clients.
In its emergency filing, Aave argued that the mere transfer of stolen crypto does not establish new legal ownership. The company also emphasized that North Korea’s involvement remains unproven and is based solely on allegations, making the law firm’s request, in Aave’s view, legally and logically unfounded.
“If the frozen assets remain unavailable and victims cannot be compensated, the stability of the entire DeFi ecosystem could be at risk,” Aave stated.
Aave’s arguments and DeFi ecosystem impact
Aave warned that approving Gerstein Harrow’s request could jeopardize future efforts to recover funds following North Korea-linked cyberattacks. The team also highlighted the risk that malicious actors could exploit such legal barriers to hinder asset recovery in similar incidents moving forward.
Aave’s legal representatives claimed the ongoing delay is causing irreversible harm to both the Aave protocol and its users, as well as undermining broader confidence in DeFi. They stressed that the lost assets cannot be replaced financially, and such prolonged legal disputes threaten the sector’s overall stability.
As part of a community vote set to end on May 7, Arbitrum DAO is poised to authorize an initiative called “DeFi United.” This industry-wide response aims to facilitate compensation for victims of the Kelp DAO breach on April 18, particularly targeting losses suffered by rsETH holders.
Law firm’s past actions and lawsuit expectations
Aave’s attorneys repeatedly underscored that claims linking the disputed Ether to North Korea rely only on online speculation, with no substantiated basis. The same law firm previously pursued similar actions targeting assets allegedly tied to North Korea on platforms including Bybit and Heco Bridge.
So far, the court has neither ruled on Aave’s urgent application nor set a hearing date. Meanwhile, Aave’s team has requested that, should the freeze notice remain in effect, Gerstein Harrow be required to post a $300 million bond to mitigate potential damages.
Aave’s legal team has maintained that mere online speculation cannot substantiate North Korean ownership, nor does transient control by North Korea grant legal title to the Ether in dispute.
The rise of such lawsuits within the crypto ecosystem spotlights the mounting legal hurdles that decentralized protocols face in compensating users after attacks.
