Aave secures emergency hearing to void ‘catastrophic’ restraining order

An emergency hearing on Wednesday could determine whether the relatives of a slain minister are entitled to $71 million in crypto that was nearly stolen by North Korean hackers last month.

The hearing, scheduled by a federal judge in New York, is part of a fast-moving legal skirmish that has complicated an industry-wide effort to compensate the victims of an April 18 hack allegedly executed by North Korean hackers.

That exploit saw hackers make off with nearly $300 million in rsETH stolen from the Kelp DAO protocol. The hackers then used the stolen crypto as collateral to borrow other, more liquid assets on Aave, the largest protocol in decentralised finance.

But several organisations were able to freeze some of the stolen crypto before it could be laundered. Arbitrum DAO was the most successful, freezing crypto worth about $71 million.

Arbitrum DAO is poised to send that crypto to a recovery fund meant to compensate users affected by the hack. But other people who have been victimised by North Korea are now trying to claim the frozen assets, citing decade-old, multimillion-dollar legal judgments against the pariah nation.

On Friday evening, attorneys for those victims served Arbitrum DAO a restraining order forbidding the cooperative from transferring any “property interests of the Democratic People’s Republic of Korea.”

The victims include Han Kim and Yong Kim, relatives of a South Korean minister who was abducted and presumably killed by North Korean agents in 2000. Han Kim and Yong Kim secured a $330 million judgement against North Korea in US federal court in 2015, according to the restraining order.

On Monday, Aave stepped into the fray.

Aave LLC filed an emergency request, asking the court to throw out the restraining order “to avoid catastrophic injuries to the Aave Protocol, its users, and the DeFi system writ large.”

Aave was "rejecting the baseless claim that stolen property title belongs to the thief," founder Stani Kulechov wrote on X. "We will keep fighting for the DeFi community."

The victims “showed up, contending – based on conjecture from posts on the internet – that the thief was North Korea, and that by stealing the assets for a few hours, North Korea somehow became the rightful owner of those assets,” the company said in its filing.

“The Immobilized Assets do not belong to North Korea or any affiliated entities. Instead, the Immobilized Assets belong to the users of the Aave Protocol.”

Arbitrum DAO began voting on Thursday to transfer the assets to the recovery fund. That vote ends on May 7, a day after the emergency hearing.

“If the Immobilized Assets remain subject to a freeze and are not made available to restore value to the Aave Protocol users, the entire DeFi ecosystem risks being destabilized,” Aave LLC wrote.

Moreover, a freeze would create “unconscionable incentives,” according to the company.

“No one would dare to stop a thief from stealing funds or property if the reward for being a Good Samaritan was a legal battle,” it wrote.

In a statement on the Arbitrum DAO governance forum, the Arbitrum Foundation said on Monday it was “in active consultation with counsel to assess the situation.”

“Given the fluid nature of this matter, we are carefully evaluating potential next steps to ensure any response is measured, appropriate, and aligned with the long-term interests of the Arbitrum community,” the nonprofit wrote.

Judge Margaret Garnett, of the Southern District of New York, gave the plaintiffs until noon Tuesday to respond to Aave’s emergency motion. Both sides will make their case before the judge during an 11 am hearing on Wednesday.

Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can reach him at aleks@dlnews.com.