A Manhattan federal judge has allowed Arbitrum DAO to move $71 million in frozen Ether to Aave, giving the DeFi lender a legal route to continue its recovery plan after a North Korea-linked rsETH exploit.
Judge Margaret Garnett of the Southern District of New York issued the order on Friday. The order modified a restraining notice that had blocked the assets inside Arbitrum DAO.
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The change allows an on-chain governance vote to transfer the funds to a wallet controlled by Aave LLC. It also protects participants in the transfer from being treated as violators of the freeze.
The ruling left the terrorism victims’ claim on the assets intact. Aave cannot freely withdraw the funds; it might need to pay back the money if the court decides to rule in their favor.
The ruling came after the overwhelming backing of Arbitrum DAO delegates in a Snapshot poll conducted offline. This vote formed part of Aave’s strategy for recovering the funds lost in the rsETH exploit tied to Kelp DAO.
Arbitrum DAO Clears Legal Transfer Step
A final transfer of the Ether will require an on-chain governance vote. Otherwise, the funds will continue to stay where they are.
In an emergency motion to the court last week, Aave requested the removal of the freezing order. The motion sought to overturn the restraining notice preventing Arbitrum DAO from transferring the funds.
This restraining notice was issued by Gerstein Harrow LLP, which represents families owed $877 million in terrorism judgments against North Korea.
According to Gerstein Harrow, the funds were stolen by North Korean hackers during the April 18 exploit.
Aave Disputes Claims in Arbitrum DAO Case
Aave countered the claim. It stated that the thief cannot have lawful ownership rights over the stolen item. It further pointed out the lack of credibility of the attribution to North Korea.
The protocol cautioned that a restraining notice might harm future efforts to recover the loss within DeFi. It said that such legal ambiguity might deter protocols from assisting their customers post-major thefts.
Gerstein Harrow has taken similar action before. In January, it filed a lawsuit against Railgun DAO. It accused the privacy protocol of money laundering for hackers from North Korea, which includes the $1.5 billion Bybit exploitation.
The Kelp DAO exploit resulted in a considerable shortage of rsETH backing. The attack led to the release of 116,500 rsETH on Ethereum without a corresponding burn on the source side.
Only 40,373 rsETH remained in the adapter contract. The confirmed backing was 152,577 rsETH. This indicates a shortfall of about 76,127 rsETH or $174.5 million.
The 30,765 ETH frozen by Arbitrum DAO might assist in reducing the shortfall. Proponents believe that partial recovery would enhance rsETH backing and benefit users on Arbitrum and the entire DeFi network.
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