Aave Seeks to Unfreeze $71 Million in Arbitrum ETH Amid Dispute

Aave LLC has asked a US court to lift a freeze on $71 million worth of Arbitrum ETH, which was set aside for victims of the KelpDAO exploit. The company argues that the restraining notice wrongly treats the recovery funds as property that creditors can seize to pay old terrorism cases against North Korea.

The saga began when a vulnerability in KelpDAO's rsETH bridge allowed an attacker to drain about $292 million from several DeFi protocols on April 18. Arbitrum's Security Council then moved quickly to freeze 30,766 ETH linked to the exploit, locking the funds in a special wallet that cannot move without a governance vote.

Aave Labs later submitted a proposal to the Arbitrum DAO to send the frozen ETH to 'DeFi United', a recovery fund managed by Aave, KelpDAO, and security firm Certora. The plan attracted broad support in Arbitrum governance and drew more than $20 million in additional pledges from partners like LayerZero and the Golem Foundation.

Aave LLC argues that letting outside creditors seize those assets would create a 'catastrophic' precedent for future DeFi hacks and rescue efforts. The company stresses that Arbitrum governance controls the ETH solely to compensate exploit victims.