Leading decentralized lending platform Aave has asked a U.S. federal court to block attempts by North Korean terrorism victims to seize approximately $71 million in cryptocurrency following last month’s rsETH-related exploit, intensifying a dispute that has already divided Arbitrum’s governance.
The filing, filed Monday in the Southern District of New York, seeks to quash a restraining notice issued to Arbitrum DAO by attorneys representing the Democratic People’s Republic of Korea’s judgment creditors. Aave argued that the assets belonged to users of its protocol, not North Korea, and warned that freezing the assets could cause “irreparable damage” to the platform and the broader DeFi ecosystem.
At the heart of the fight is the Arbitrum Security Council’s freeze of 30,765 ETH following an April exploit in which attackers used improperly valued or unbacked rsETH as collateral for Aave, leading the plaintiffs to claim that approximately $230 million in ETH was withdrawn from the Aave protocol. Some of these funds were later intercepted and frozen on Arbitrum, with plans to return them to affected users as part of a coordinated recovery effort.
At issue is whether the stolen property briefly held by the hackers became their legal property.
The plaintiffs, three groups of judgment creditors holding $877 million in damages against North Korea, argue that is the case — and because the rsETH attackers are widely believed to have ties to Pyongyang’s Lazarus Group, the recovered ether could enable claims against those decades-old judgments.
Aave’s lawyers called the theory “completely false” and warned it would punish innocent users while rewriting basic property laws.
Ive’s motion directly challenges that theory. The document states that restricted ETH “belongs to[s] to a completely blameless third party” rather than to North Korea, and even if the thieves briefly held the assets, it did not confer legal title.
It also cast doubt on potential attribution, saying claims that the vulnerability was carried out by North Korean actors were “speculation” based on unconfirmed reports.
Aave asked the court to lift the restraining notice immediately, or at least suspend it while the case is pending.
Aave said freezing funds through a restriction notice could exacerbate losses and destabilize a DeFi market already strained by the vulnerability. The document warned that this “increases the likelihood of cascading liquidations, continued liquidity outflows, and irreversible changes in user positions,” a chain reaction the industry has been trying to avoid for two weeks.
The results could have ramifications far beyond this case. If courts allow outside creditors to claim seized or recovered cryptocurrencies, it could hamper future rescue efforts and complicate the way the industry responds to hacks, when speed and coordination are often the only tools to limit losses.