Arbitrum DAO Votes to Release About $70M in Frozen ETH to Fund Kelp DAO rsETH Recovery
Arbitrum DAO has approved, through a governance vote held Thursday, the release of roughly $70 million worth of Ethereum previously frozen on-chain, as part of a coordinated plan to compensate victims of the Kelp DAO rsETH vulnerability, CoinDesk reported. The transfer could still be halted by a U.S. federal court order.
The proposal, co-authored by Avi Labs, KelpDAO, LayerZero, EtherFi, and Compound, passed with 182.2 million votes in favor (about 90.96%) and minimal opposition. The funds consist of 30,765.67 ETH that Arbitrum's Security Council froze last month, days after an attacker exploited a flaw tied to Kelp's LayerZero crosschain bridge. The exploit led to the issuance of 116,500 rsETH without a corresponding burn on the source chain, after which the attacker used the unbacked rsETH as collateral. Aave subsequently withdrew around $230 million worth of ETH from protocol users.
Under the approved plan, the ETH would be moved to a 3-of-4 Gnosis Safe controlled by representatives from Aave, KelpDAO, EtherFi, and Certora, and earmarked specifically for rsETH recovery efforts. A restraining-order notice filed May 1 in the U.S. District Court for the Southern District of New York has introduced uncertainty around whether the transfer can proceed.
The plaintiff, who holds a judgment against North Korea tied to decades-old unpaid debts, secured court approval by citing online allegations linking the hack to the Lazarus Group. A Notice of Service was issued naming Arbitrum DAO, asserting the frozen ETH is property of the Democratic People's Republic of Korea and may be seized to enforce the judgment.
Court filings submitted Monday show Aave LLC asked the court to vacate the restriction notice, calling it unfounded. In the alternative, Aave requested that the plaintiff post at least $300 million in security, arguing that the freeze is causing protocol users direct and irreparable harm.
Yuriy Brisov, a partner at Digital & Analogue Partners, told Decrypt that while a transfer may be technically possible, executing it in the presence of sanctions risk is effectively untenable. He pointed to New York precedent, citing Aspen Industries v. Ocean Midland Bank, and noted that New York's Civil Practice Law and Rules treat a restraining notice as having the force of an injunction; noncompliance can amount to contempt of court under Section 5251.
Brisov added that, although the execution layer would not recognize a New York court order, identifiable participants involved in execution have received subpoenas. Once those individuals are on notice, he said, transferring the ETH could expose them to contempt. He also said an indemnification clause would not shield against contempt liability. Another legal source, Birshteyn, said the practical issue is whether anyone in the U.S. will take that risk—a dynamic that helps explain why Aave is challenging the merits of the restriction rather than arguing the chain lies outside U.S. jurisdiction.
Brisov said a favorable ruling could clear the way for this specific transfer, but warned the case may still create a template for future claims because the Security Council's April 21 action "demonstrated... the existence of a control point." Revoking the notice, he said, does not undo the scrutiny now focused on that control mechanism.
Alice Frey, Head of Legal and Compliance at OMI, said lifting the freeze would remove the most immediate hurdle, but the governance vote would not implement automatically. Decrypt reported that the release still depends on completing Arbitrum's governance process and remains exposed to ongoing legal risk, including further litigation over whether the ETH qualifies as "attachable property." Even if Aave prevails, the path to enforcement may not be seamless.
The Kelp DAO exploit has also triggered the broader "DeFi United" recovery initiative, which has raised more than $300 million. The 30,765 ETH frozen on Arbitrum is expected to cover part of the estimated 76,127 rsETH shortfall, and the approved proposal does not introduce new costs for the DAO.
