Law Firm Seeks to Block Frozen ETH From Kelp Exploit

United States law firm Gerstein Harrow is trying to stop the transfer of more than $70 million in frozen Ether tied to the Kelp DAO exploit, potentially complicating DeFi recovery efforts.

According to reports, the firm obtained a New York court order aimed at blocking Arbitrum DAO from moving 30,766 ETH that was frozen after the April 18 exploit. The Ether is worth about $71 million to $73 million, based on prices cited in reports.

Court Order Targets Arbitrum-Held Funds

The dispute centers on Ether frozen by Arbitrum’s Security Council after attackers linked to the Kelp DAO exploit moved assets through the network.

Gerstein Harrow said its clients hold more than $877 million in unpaid US judgments against North Korea. The firm argues that the frozen ETH could be subject to those claims because the exploit has been linked to North Korean actors.

The legal action could slow or complicate efforts to use the frozen funds for victim compensation. Reports said Arbitrum DAO had been moving toward, and is now voting on, a plan to transfer the ETH to a fund tied to DeFi United, the industry-led effort formed after the exploit.

Kelp Exploit Left Major Bad Debt

The Kelp DAO attack took place on April 18 and involved the minting or movement of unbacked rsETH through cross-chain infrastructure. Chainalysis said attackers linked to North Korea’s Lazarus Group stole about $292 million, equal to 116,500 rsETH, in what it described as an attack on off-chain infrastructure rather than a direct smart contract exploit.

The exploit created spillover risk for DeFi lending markets, including Aave, where the unbacked rsETH was used as collateral. That left affected protocols and market participants scrambling to build a broader recovery plan to cover losses and restore confidence.

Arbitrum’s freeze of 30,766 ETH became a key potential recovery pool, and the new court action adds uncertainty to that path.

Legal Claims Compete with DeFi Recovery

The case sets up a difficult clash between two groups of claimants. On one side are DeFi users and protocols seeking restitution from assets frozen after the Kelp exploit. On the other hand, plaintiffs with older US court judgments against North Korea argue that DPRK-linked crypto assets can be used to satisfy those judgments.

That conflict has already drawn criticism from crypto investigators. ZachXBT accused Gerstein Harrow of getting in the way of compensation for actual exploit victims, while the firm has framed its action as an effort to enforce judgments tied to North Korea-linked harm.

Recovery Process Faces Uncertainty

The immediate effect is uncertainty over who controls the frozen ETH. If the court order stays in place, Arbitrum may be unable to release the funds for a DAO-approved recovery plan until the legal dispute is resolved.

The case also raises a broader question for crypto asset recovery. Emergency freezes can preserve stolen funds, but once assets are locked, courts, creditors, victims and protocol governance may all try to assert competing claims.

For DeFi, the Kelp case is becoming more than another exploit recovery. It is now a test of how on-chain governance, court orders and sanctions-linked asset claims interact when stolen crypto is frozen before victims are repaid.