DeFi lender Aave and other stakeholders affected by last month’s Kelp DAO hack have launched a binding Arbitrum governance vote to transfer $71 million in disputed ether to an address controlled by Aave LLC.
A constitutional arbitration improvement proposal, or AIP, is the DAO’s formal on-chain governance mechanism for approving binding protocol actions. This amended proposal implements Judge Margaret Garnett’s recent court order authorizing an on-chain Arbitrum DAO vote to transfer frozen ETH from its current frozen address to a wallet controlled by Aave LLC, provided the restriction notice requested by creditors of the North Korean terrorism judgment is honored.
If approved, the proposal would move 30,765 ETH from the wallet where the Arbitrum Security Council tied up the funds to an address controlled by Aave LLC, as required by the court order. However, the assets would remain subject to strict legal restrictions and Aave LLC will not be able to freely use, transfer or deploy them unless permitted by the court.
The legal fight over the frozen assets took an unusual turn after blockchain forensics firms widely attributed the exploit to North Korea’s Lazarus Group. That attribution comes from blockchain analysis firms and external forensic investigations, and has not been established as a legal finding either within Arbitrum’s governance process or in ongoing court proceedings.
Still, that attribution has been cited along with broader legal arguments by attorneys representing families holding roughly $877 million in unpaid U.S. terrorism judgments against North Korea, who argue that if the assets are considered ultimately tied to North Korea for law enforcement purposes, they could potentially be used to satisfy those long-standing court judgments.
Aave disputes that premise, arguing that the ether belongs to the users harmed by the exploit, not the attackers who briefly controlled it, turning the case into a fight over whether the funds should go to DeFi victims or terrorism creditors.
In a separate lawsuit, many of the same terrorism judgment creditors sued privacy protocol Railgun DAO, alleging that it allowed funds linked to North Korea to move through its infrastructure instead of freezing them, as part of a broader strategy to go after cryptocurrencies allegedly linked to Pyongyang in decentralized finance.
Voting on the AIP is scheduled to begin on May 15.
