Aave is launching a binding governance vote on Arbitrum to transfer $71 million in disputed ETH from the Arbitrum Security Council wallet to Aave LLC, following a court order issued by Judge Margaret Garnett. The Constitutional Arbitrum Improvement Proposal (AIP) is scheduled to begin voting on May 15, 2026, and addresses competing claims to 30,765 ETH frozen after the Kelp DAO hack.
Court Order Triggers Custody Transfer
Judge Margaret Garnett’s court order required the Arbitrum Security Council to respect a restraining notice on the frozen funds. The order emerged from a dispute between DeFi users claiming ownership of exploit-affected assets and U.S. terrorism judgment creditors seeking to satisfy $877 million in unpaid awards against North Korea. Blockchain forensics firms attributed the Kelp DAO exploit to North Korea’s Lazarus Group, though this attribution has not been legally established in court. Aave argues the funds belong to exploit victims, not attackers, positioning the LLC custody transfer as the appropriate mechanism for asset recovery.
Governance Vote Sets Binding Resolution Path
The AIP vote represents Arbitrum DAO’s binding governance mechanism for asset transfers. Voting begins May 15, 2026, with the Constitutional framework requiring community approval before funds move from the Security Council wallet to Aave LLC custody. The $71 million transfer does not resolve the underlying legal dispute over final ownership; assets remain legally restricted post-transfer under the restraining notice. The vote outcome will determine whether Aave LLC becomes the custodian pending further court rulings on creditor claims and victim compensation.
Competing Claims Reshape DeFi Legal Precedent
The case highlights tension between victim compensation in DeFi exploits and asset seizure under terrorism judgments. U.S. creditors holding terrorism judgments against North Korea argue that frozen assets linked to the nation’s alleged attackers could satisfy unpaid awards. DeFi users counter that victims of the exploit should recover their losses first. This dispute extends to Railgun DAO, a separate lawsuit defendant in related proceedings. The outcome sets precedent for how DAOs handle court-ordered asset custody in cases involving state-attributed attacks and competing creditor claims.
Arbitrum Governance and Legal Uncertainty Remain
The Arbitrum vote on May 15 addresses immediate custody but leaves unresolved the fundamental question of fund ownership. Aave LLC’s role as custodian does not end litigation between creditors and exploit victims. The restraining notice remains in effect post-transfer, meaning assets cannot be distributed until courts determine which claimant has priority. Further court rulings are expected to follow the governance vote outcome.
