NY Judge Delays Aave Bid to Unlock $71M in ETH

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A New York federal judge has delayed a decision on Aave’s emergency request to lift legal restrictions on about $71 million in frozen Ether tied to the Kelp DAO exploit.

Judge Margaret M. Garnett of the U.S. District Court for the Southern District of New York ordered Aave and Gerstein Harrow LLP to submit more legal arguments before a new hearing on June 5.

The judge said Aave had not yet fully shown how users would face “compounding losses” if the restraining notice on the funds remains in place.

30,765 ETH Remains Under Legal Restriction

The case centers on 30,765 ETH that Arbitrum’s Security Council froze on April 21 after tracing the assets to the April 18 Kelp DAO exploit. The frozen Ether is worth about $71 million, depending on market prices.

Aave wants the court to lift the restraining notice so the funds can be used in the rsETH recovery effort involving Kelp DAO, Aave, and other affected DeFi protocols. The Kelp exploit allowed attackers to mint unbacked rsETH, which was later used as collateral on Aave v3 to borrow large amounts of wrapped Ether.

Gerstein Harrow Cites $877M North Korea Judgments

Gerstein Harrow is trying to block the transfer on behalf of clients holding more than $877 million in default judgments against North Korea. The firm argues that the frozen ETH may be tied to North Korean actors and could be used to satisfy those judgments.

Aave argues the Ether should go to victims and affected DeFi protocols, not unrelated creditors. The protocol has warned that keeping the restraining notice in place could weaken future efforts to recover funds after North Korea-linked crypto attacks.

May 22 Briefs Come Before June 5 Hearing

The court previously allowed an on-chain vote to transfer the ETH to an Aave LLC-controlled wallet. However, the restraining notice would still follow the funds unless the court later vacates or modifies it.

That leaves the recovery plan restricted while Aave seeks fuller relief. Supplemental briefs are due May 22, and the court will revisit the issue on June 5. For now, the 30,765 ETH remains tied up in a legal dispute between DeFi recovery efforts and judgment creditors pursuing assets allegedly linked to North Korea.