DeFi lender Aave and other stakeholders affected by last month’s Kelp DAO hack have initiated a binding arbitration governance vote to transfer $71 million in disputed Ether to an address controlled by Aave LLC.
The Arbitration Improvement Proposal (AIP) is the DAO’s formal on-chain governance mechanism for approving binding protocol actions. This revision implements Judge Margaret Garner’s... recent court order, which authorizes the Arbitrum DAO to conduct an on-chain vote to transfer the frozen ETH from its current locked address to a wallet controlled by Aave LLC, provided that notice of restrictions sought by creditors of the North Korean terrorism judgment is respected.
If approved, the proposal will, as required by the court order, transfer 30,765 ETH from the wallet frozen by the Arbitration Committee’s Security Council to an address controlled by Aave LLC. However, these assets will remain subject to strict legal restrictions, and Aave LLC may not freely use, transfer, or deploy them without court approval.
Following the widespread attribution of the attack to North Korea’s Lazarus Group by blockchain forensic firms, an unexpected twist has emerged in the legal disputes surrounding the asset freeze. This attribution, based on blockchain analysis and external forensic research, has not yet been established as a legal conclusion in arbitration proceedings or ongoing court litigation.
However, this attribution has been cited alongside broader legal arguments. Lawyers representing the family argue that North Korea holds approximately $877 million in unpaid U.S. terrorism judgments, and that if these assets are ultimately determined to be linked to North Korea and seized for enforcement, they could be used to satisfy these long-pending court judgments.
Aave contested this premise, arguing that Ether belongs to the users harmed in the attack, not to the attackers who temporarily controlled it, turning the case into a debate over whether the funds should go to DeFi victims or terrorist creditors.
In another lawsuit, many of the same terrorism judgment creditors sued the privacy protocol Railgun DAO, alleging that the company allowed funds linked to North Korea to flow through its infrastructure rather than freezing them, as part of a broader strategy to track allegedly Pyongyang-linked cryptocurrencies in the decentralized finance space.
Voting for AIP will begin on May 15.