Aave LLC has filed an emergency court motion seeking to lift a restraining notice served on Arbitrum DAO that has frozen approximately $71mn in Ether intended for victims of the Kelp DAO exploit.
Aave Files To Free $71mn in Frozen ETH Earmarked for Kelp Hack Victims
5 May 2026 - 11:48 CEST
By Matt Neill
The restraining notice was served on 1 May at the request of a group of creditors who hold unpaid judgments against North Korea as compensation for acts of state-sponsored terrorism going back as far as the 1972 Lod Airport Massacre in Israel. The claimants in that long-running case have sought to seize crypto assets they believe to be linked to the Lazarus Group, an alleged hacker group operating on behalf of North Korea.
The frozen ETH forms part of the recovery pool assembled to compensate users affected by the Kelp exploit, which North Korea-linked hackers have been accused of carrying out.
Legal Challenge to Asset Freeze
In a 4 May emergency filing at the US District Court for the Southern District of New York, Aave LLC argued the restraining notice targets assets that were stolen and subsequently recovered for the purpose of victim restitution.
The protocol said in an X post that "a thief does not gain lawful ownership of stolen property simply by taking it," and that freezing recovered funds actively harms users whom the recovery effort is designed to protect.
Aave has requested an expedited hearing and temporary vacatur of the restraining notice, and said it is continuing to work alongside the Arbitrum community and DeFi United to help affected users.
Exploit Fallout and Recovery Efforts
The underlying incident saw alleged North Korea-linked hackers drain approximately $292mn from Kelp DAO by compromising LayerZero verifier nodes and using stolen restaked ETH as collateral on Aave to generate bad debt estimated between $177mn and $196mn.
The attack triggered nearly $6bn in withdrawals from Aave, pushing its total value locked to roughly $20bn from around $26bn and sending the AAVE token down close to 20%.
Recovery efforts have been underway since. Babylon Foundation committed $3mn in USDT to Aave lending pools as part of stabilisation measures, while DeFi United, an industry-backed rescue vehicle, was established to rebuild rsETH backing and compensate affected depositors.
A governance proposal to unlock frozen ETH via Arbitrum DAO had been advancing before the restraining notice intervened. The legal action now risks delaying restitution to users whose losses remain outstanding, and raises broader questions about the interaction between US judicial process and decentralised recovery mechanisms operating across multiple chains.
