Aave, a decentralized non-custodial liquidity protocol, has asked a U.S. federal court to lift a restraining notice that has immobilized about $71 million in Ethereum, arguing the funds are part of an active recovery effort following a major exploit.
The motion, filed in the Southern District of New York on Monday, requests immediate vacatur of the order or, at a minimum, temporary relief while the court reviews the case on an expedited basis.
Legal clash tied to unrelated judgments
The restraining notice was served on Arbitrum DAO as part of enforcement actions in longstanding cases against North Korea. Plaintiffs argue the frozen crypto could be linked to a judgment debtor and therefore subject to seizure.
Aave disputes that claim, stating the theory relies on unverified online attribution of the attacker and does not establish any direct legal interest by North Korea in the assets. The filing emphasizes that no court has determined responsibility for the exploit or confirmed the identity of the attacker.
How the exploit unfolded
The dispute traces back to an April 18 incident involving rsETH, a liquid restaking token issued by KelpDAO. A breakdown in a cross-chain bridge allowed an attacker to release unbacked rsETH and use it as collateral to borrow large amounts of ETH from Aave.
According to the filing, this resulted in the removal of roughly $230 million worth of ETH from Aave markets. The assets belonged to users who had deposited funds to earn yield through the protocol. Part of the stolen amount, about $71 million, was intercepted by participants in the Arbitrum ecosystem and moved to a separate address as a containment measure.
Dispute over ownership and control
Aave’s central argument is that the immobilized ETH represents user funds that were temporarily taken during the exploit and later recovered. The filing rejects the idea that a hacker gains lawful ownership of assets simply by moving them on-chain, describing that interpretation as inconsistent with established legal principles.
It also notes that blockchain traceability shows movement of assets between addresses but does not determine ownership rights. From the protocol’s perspective, the recovered ETH is economically tied to losses suffered by users and is intended to offset those deficits.
Recovery efforts interrupted
Following the exploit, Aave and other ecosystem participants initiated emergency measures, including freezing affected markets and coordinating with external contributors in what has been described as a broader “DeFi United” recovery effort.
The immobilized ETH held through Arbitrum was expected to be used to restore backing for rsETH and stabilize affected lending pools. The restraining notice has effectively paused that process, preventing the assets from being redeployed.
Aave argues that this delay is already prolonging liquidity stress, leaving some users unable to withdraw funds and exposing positions to further risk in volatile market conditions.
Systemic risk concerns
The filing warns that continued restraint could have ripple effects beyond a single protocol. Because DeFi positions are often interconnected, disruptions in one market can affect collateral balances and trigger liquidations elsewhere.
Aave states that the harm is not limited to immediate losses but includes broader instability that cannot be easily reversed through later compensation. It frames the situation as time-sensitive, where delays increase the likelihood of cascading effects across the ecosystem.
Challenge to the legal basis
Aave also questions whether the restraining notice meets the legal standard required under New York law, which generally limits such actions to property in which a judgment debtor has a clear, direct interest.
The motion argues that the plaintiffs’ claim relies on conjecture rather than evidence and attempts to apply enforcement tools to assets belonging to third parties, namely, Aave users with no connection to the underlying lawsuits.
It further raises procedural concerns about serving legal process on a decentralized entity like Arbitrum DAO, noting unresolved questions about whether such structures can be treated as traditional legal persons.
What Aave is asking for
In addition to vacating the restraining notice, Aave is asking the court to impose conditions if the freeze remains in place. This includes requiring plaintiffs to post a bond of at least $300 million, reflecting potential damages caused by delaying access to the funds.
The company maintains that without swift intervention, recovery efforts could be reversed and affected users could face deeper financial harm.
The court has not yet ruled on the motion. Aave is seeking a rapid hearing schedule, arguing that even short delays could worsen the impact of the exploit and complicate efforts to restore normal market conditions across the DeFi ecosystem.
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