In a major development within the cryptocurrency sector, the Arbitrum community has approved the release of $71 million worth of ether (ETH), which was frozen last month following an attack allegedly linked to North Korea. Arbitrum is a prominent Ethereum-based layer-2 solution, recognized for its decentralized governance model.
High support for fund release
On-chain voting, which concluded on Friday Hong Kong time, showed over 90 percent of participants in favor of returning 30,765 ETH. These funds had been frozen by the Arbitrum Security Council after an attack on April 18. At that time, attackers reportedly used unsupported rsETH tokens as collateral to withdraw around $230 million in ETH from the Aave platform.
The ether in question is earmarked for compensating users who suffered losses, as part of a collaborative industry recovery initiative involving Aave, KelpDAO, LayerZero, EtherFi, and Compound.
Legal battle in US court
However, the planned release of the funds is currently at the center of an ongoing legal dispute in federal court in Manhattan. Last week, attorney Charles Gerstein filed a restraining notice to Arbitrum DAO on behalf of families holding roughly $877 million in unpaid terrorism compensation against North Korea, claiming the funds belong to the regime. This argument is based on widely held suspicions that the hack was carried out by North Korea’s notorious Lazarus cyber group.
In response, the Aave side formally requested the removal of the restriction earlier this week, emphasizing that the assets should be restored to innocent users, not to North Korea. They also warned that prolonged proceedings could trigger liquidity issues across decentralized finance markets.
Meanwhile, Gerstein maintains that the case is fraud, not theft, asserting that the attackers legally obtained ownership by using worthless collateral.
What happens next?
The governance vote on Arbitrum does not mean the funds will be released immediately. According to protocol requirements, the decision can only be enacted after at least eight days, a timing designed to allow for possible court intervention.
The proposal also stresses protections for the Arbitrum Foundation, Offchain Labs, Security Council members, and governance delegates from any legal claims arising from the freezing or release of the funds. This point highlights the significant risks involved, even after the vote.
Speaking at the Consensus event in Miami, Linda Jeng, Head of Legal and Policy at Aave Labs, said the incident has driven changes in how the platform assesses risk. As Jeng explained, collateral standards are being updated to include not just financial indicators but also cybersecurity, interoperability, and technical infrastructure reviews.
“During the financial crisis, we had to rescue banks. Now, as an ecosystem, we’ve come together to rescue ourselves,” stated Linda Jeng, highlighting a shift in crisis resilience strategies.
As Jeng pointed out, unlike traditional financial systems, decentralized protocols like Arbitrum emphasize internal solidarity to overcome industry challenges. The outcome of the ongoing case in Manhattan remains to be seen.
