Arbitrum DAO clears path to transfer $71M in frozen ETH to Aave

A federal court just gave Arbitrum DAO permission to do something that, until last week, would have put its token holders in legal jeopardy: vote on what to do with $71 million worth of ETH that nobody has been allowed to touch since early May.

Judge Margaret Garnett of the US District Court for the Southern District of New York issued an order on May 8 modifying a restraining notice that had frozen 30,765 ETH tied to the Arbitrum DAO. The modification doesn’t unfreeze the funds outright. It simply allows the DAO to hold an on-chain governance vote on whether to transfer those assets to Aave LLC, the legal entity behind the DeFi lending protocol, as part of a broader recovery effort following a massive exploit.

The exploit, the freeze, and the legal tangle

On April 18, an exploit involving the rsETH token drained funds in a hack linked to North Korea’s Lazarus Group. Within two weeks, on May 1, the law firm Gerstein ROLP slapped a restraining notice on the 30,765 ETH sitting in the DAO’s treasury. The notice was tied to $877M in creditor claims.

Aave LLC had been working on a recovery plan for exploit victims, and the frozen ETH was a critical piece of that puzzle. With the assets locked up, Aave couldn’t execute its strategy. So the protocol’s legal entity filed an emergency motion to get the restraining notice modified.

The result is Judge Garnett’s May 8 order. DAO participants can now cast votes on the proposed transfer without violating the restraining notice. But the order does not wipe out the underlying creditor claims. Those $877M in claims are still very much alive.

What the governance vote actually decides

A binding governance vote is scheduled for May 15. If it passes, the 30,765 ETH would be transferred from the Arbitrum DAO treasury to Aave LLC, which would then use the funds as part of its rsETH recovery process.

The court’s order is permission to vote, not permission to transfer. If the vote passes, the actual movement of funds will still need to comply with whatever legal framework the court ultimately sets. Creditors can still challenge the transfer, and the restraining notice, while modified, remains in effect for purposes beyond the vote itself.

Mantle DAO steps in with a backstop

On May 12, Mantle DAO approved a 30,000 ETH loan to Aave with unanimous voter support. The loan is collateralized by Aave’s revenue streams and tokens. Between the Mantle loan and the potential Arbitrum transfer, Aave would have access to over 60,000 ETH earmarked for making exploit victims whole.

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