Aave and Arbitrum Launch Binding On-Chain Vote to Transfer $71 Million in Frozen ETH

Image Credit: Arbitrum

Aave LLC and other parties affected by last month’s Kelp DAO exploit have initiated a binding Arbitrum governance vote to transfer 30,765 ETH, currently valued at approximately $71 million, into an Aave LLC-controlled wallet, as mandated by a federal court order tied to competing claims from North Korean terrorism judgment creditors.

Amended Constitutional AIP Filed to Execute Court’s Transfer Order

The proposal is structured as a Constitutional Arbitrum Improvement Proposal, the DAO’s formal on-chain mechanism for approving binding protocol actions. The amended AIP is designed to implement an order issued by Judge Margaret Garnett, which authorizes an on-chain Arbitrum DAO vote to move the frozen ETH from its current immobilized address to a wallet controlled by Aave LLC. 

Under the terms of the court’s order, the assets would remain subject to strict legal restrictions and could not be freely used, transferred, or deployed by Aave LLC without further court authorization. Voting on the proposal is scheduled to begin May 15.

Terrorism Judgment Creditors Claim the Frozen Funds Could Satisfy $877 Million in Unpaid Awards

The legal dispute over the frozen ETH took on an added dimension after blockchain analytics firms Chainalysis and external forensic researchers attributed the Kelp DAO exploit to North Korea’s Lazarus Group. That attribution has not been established as a legal finding within either the Arbitrum governance process or the ongoing court proceedings.

Lawyers representing plaintiffs holding roughly $877 million in unpaid U.S. terrorism judgments against North Korea have cited the attribution in their legal arguments, contending that if the assets are ultimately deemed linked to North Korea for enforcement purposes, they could be applied toward those outstanding court awards.

Aave Argues the ETH Belongs to Exploit Victims, Not the Attackers

Aave disputes the terrorism creditors’ position, arguing that the ether belongs to users harmed in the exploit rather than to the attackers who briefly held it. The two sides disagree over whether the funds should be directed to exploit victims or terrorism judgment creditors. 

In a separate legal action, many of the same creditors have sued privacy protocol Railgun DAO, alleging the protocol allowed North Korean-linked funds to move through its infrastructure rather than freezing them.

Binding Vote Set to Open May 15 as Legal Disputes Continue in Manhattan Court

The competing claims are playing out simultaneously on two tracks: on-chain through the Arbitrum governance process, and in federal court in Manhattan, where the terrorism creditors continue to contest ownership of the frozen assets. 

If the AIP passes the Arbitrum vote, the 30,765 ETH would move from the Arbitrum Security Council wallet to an Aave LLC-controlled address. The transfer, however, would not resolve the underlying legal dispute, as the court order requires Aave LLC to hold the funds subject to the existing restraining notice sought by the terrorism judgment creditors.