A Manhattan federal judge has authorized Aave to move $71 million in ETH from Arbitrum that was frozen following a North Korea-attributed exploit, while preserving legal claims by terrorism judgment creditors seeking to seize the funds. Judge Margaret Garnett’s order, issued May 9, permits an onchain governance vote to transfer the assets to an Aave-controlled wallet, creating a narrow path for protocol recovery without extinguishing creditors’ claims against the frozen cryptocurrency.
How the Exploit Created Frozen Assets
The $71 million in ETH stems from an exploit last month attributed to the Lazarus Group, a hacking entity linked to North Korea. The frozen funds currently sit on Arbitrum DAO’s blockchain, held in a state of legal limbo. Terrorism judgment creditors holding $877 million in unpaid judgments against North Korea have aggressively pursued crypto assets connected to the nation’s state actors as they surface on DeFi infrastructure. Judge Garnett’s ruling acknowledges this broader enforcement strategy while allowing Aave to execute its recovery protocol, balancing competing legal interests in a single asset.
The Court’s Conditional Approval
Garnett’s order permits Aave to proceed with an onchain governance vote to transfer the ETH to an Aave-controlled wallet, but maintains a restraining notice that preserves creditors’ legal right to pursue seizure. This hybrid approach allows the protocol to recover compromised funds while keeping the assets within reach of U.S. courts. Attorney Charles Gerstein, representing the terrorism judgment creditors, secured language that protects their claims even as Aave gains custody. The ruling does not determine ownership; it creates procedural space for both parties to advance their interests through separate legal channels.
Expanding Litigation Against DeFi Infrastructure
The Aave ruling reflects a broader enforcement pattern. In January, creditors filed a separate lawsuit against Railgun DAO, a privacy protocol. Digital Currency Group, which purchased $10 million in Railgun tokens in 2022, was also named in litigation. By March, plaintiffs had filed default motions against Railgun DAO. These cases signal that terrorism judgment holders view DeFi protocols themselves as potential enforcement targets, not just the compromised assets flowing through them. The strategy pressures platforms to implement stronger DPRK-linked transaction screening or face legal liability.
Next Phase: The Governance Vote
Aave must now execute its onchain governance vote to formally approve the transfer. Until that vote succeeds, the $71 million remains frozen on Arbitrum. Creditors retain the ability to challenge Aave’s custody or seek asset seizure through separate court filings. The ruling does not guarantee creditors will ultimately recover the funds, but it ensures their legal claims survive Aave’s recovery process. Outcome of the governance vote has not been reported.
