Arbitrum DAO Approves $70M ETH Release for KelpDAO Recovery Despite Federal Court Threat

TL;DR:

• Arbitrum DAO approved with 90.96% of votes to release 30,765.67 ETH, equivalent to approximately $70 million, to compensate victims of the KelpDAO exploit.
• A court order from the Southern District of New York could block the transfer.
• Legal experts warn that executing the vote now exposes any identifiable person in the execution chain to a contempt of court sanction.

The Arbitrum DAO approved the release of approximately $70 million in frozen ETH intended to compensate victims of the KelpDAO exploit, although a federal court order from the United States could prevent the transfer from being completed.

The proposal, co-created by Aave Labs, KelpDAO, LayerZero, EtherFi, and Compound, received 182.2 million votes in favor, representing 90.96% of the total, against almost no opposition. The vote approves the transfer of the funds to a Gnosis Safe wallet controlled by representatives of Aave, KelpDAO, EtherFi, and Certora, for exclusive use in the rsETH token recovery process.

The 30,765.67 ETH had been frozen by the Arbitrum Security Council in April, days after an attacker found a flaw in Kelp’s cross-chain bridge based on LayerZero. The hacker was able to mint 116,500 rsETH on Ethereum without the corresponding burn on the source chain. Using those unbacked tokens as collateral, the attacker drained approximately $230 million in ETH from users of the Aave protocol.

A Court Order That Complicates Everything

On May 1, plaintiffs with decades-old unpaid judgments against North Korea obtained permission in the Southern District of New York to serve a restraining order on the DAO, arguing that the frozen ETH constitutes property of the North Korean government subject to seizure, given that the hack was attributed to the Lazarus Group.

Will KelpDAO’s Recovery Be Cut Short?

Aave LLC filed a brief on Monday requesting that the court vacate the restraining order and, if maintained, require the plaintiffs to post a bond of at least $300 million, arguing that the freeze causes immediate and irreparable harm to users.

Yuriy Brisov, partner at Digital & Analogue Partners, was blunt on the matter. “The honest answer is: technically possible, but practically suicidal for anyone whose name appears in the execution,” he stated. He explained that, once identifiable persons in the execution chain have effective knowledge of the order, moving the ETH constitutes contempt of court, and noted that the compensation outlined in the proposal “does not cover contempt liability.”

Alice Frei, head of legal and compliance at OMI, warned that even a favorable ruling for Aave will not guarantee a smooth execution, as the plaintiffs could continue to dispute whether the ETH is “attachable property.”