Judge Delays Aave Bid to Unfreeze $71M in ETH From Kelp DAO Hack

TLDR

A New York federal judge has delayed a decision on Aave’s emergency request to unfreeze $71 million in ETH tied to the Kelp DAO hack, asking both sides to provide more legal detail before a new hearing in June.

Judge Margaret M. Garnett of the U.S. District Court for the Southern District of New York ordered supplemental briefings after finding that Aave had not fully explained how user losses could compound if the restraining notice remains in place.

Aave is seeking access to 30,765 ETH frozen on Arbitrum as part of recovery efforts after the $293 million Kelp DAO exploit. The funds are connected to attempts to restore backing for rsETH, a liquid restaking token affected by the hack.

The restraining notice was filed in early May by law firm Gerstein Harrow LLP, which said its clients have claims to the frozen assets. Aave then filed an emergency motion arguing that continued restrictions could trigger user liquidations and create pressure across DeFi markets.

Judge Requests More Detail From Aave and Claimants

Judge Garnett said the court recognizes the risk of near-term harm to Aave LLC and Aave Protocol users. However, she said the case involves complex legal and technical questions that need more explanation before the court rules.

The judge asked both sides to address six key issues in new filings. These include whether New York’s shelter principle applies to the hacking transactions, how the court should distinguish fraud from theft, and what legal interest hackers may have in stolen assets.

The court also asked which law governs creditor priority over the frozen ETH. Another question centers on whether a constructive trust would be an appropriate remedy for the disputed assets.

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The judge also asked whether Aave or Arbitrum can identify individual victims and return assets on a proportional basis. That question matters because DeFi recovery cases often involve many affected users, smart contracts and indirect claims.

Aave and Gerstein Harrow must submit their additional briefs by May 22. The next hearing is scheduled for June 5.

Arbitrum Vote and Creditor Claims Remain Active

The dispute follows an earlier court order that allowed Arbitrum DAO to hold a governance vote on the frozen ETH without violating the restraining notice.

The order did not fully release the assets. It only allowed token holders to vote on whether the 30,765 ETH should be transferred to Aave LLC as part of the rsETH recovery process.

A binding Arbitrum governance vote was scheduled for May 15. If approved, the transfer would still need to comply with the court’s legal framework.

The creditor claims tied to the restraining notice remain unresolved. Reports linked those claims to roughly $877 million, meaning the frozen ETH remains part of a wider dispute between recovery efforts and parties seeking repayment.

The court’s decision shows that DAO governance and legal claims can overlap when frozen blockchain assets become part of recovery plans. Even if a DAO vote approves a transfer, courts may still decide whether creditors or victims have stronger claims.

Kelp DAO Recovery Plan Continues

The Kelp DAO hack took place in April and involved rsETH-related assets. The attack was linked in reports to North Korea’s Lazarus Group.

Kelp and Aave said they have taken steps to restore rsETH backing. The hacker’s rsETH on Arbitrum has been burned, and lost tokens worth about $278 million are expected to be restored over two weeks through funds from the Aave Recovery Guardian multisignature wallet.

Once related smart contracts are reactivated, rsETH use is expected to return to normal. The frozen ETH remains a separate part of the broader legal and recovery process.

Mantle DAO also approved a 30,000 ETH loan to Aave on May 12. The loan is backed by Aave’s revenue streams and tokens. Together with the possible Arbitrum transfer, Aave could access more than 60,000 ETH for victim recovery.

The June 5 hearing will determine whether Aave can move forward with the frozen ETH or whether the restraining notice will continue blocking access while creditor claims are reviewed.