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Arbitrum is taking baby steps toward the release of $70M in ETH frozen after April’s Lazarus-linked rsETH exploit, setting the scene for a high-stakes clash over ownership of the funds between DeFi and the U.S. court system.
What's the Scoop?
- Proposal Passage: Arbitrum governance delegates have approved via Snapshot the release of 30,765 ETH (worth roughly $70M) that was frozen following last month's rsETH exploit.
- Ongoing Process: The decision to move funds is far from final, with a Snapshot vote being only the second of many steps in Arbitrum’s lengthy “Constitutional AIP” governance process. Before any ETH can move, the proposal must clear: a three-day voting delay, a 14- to 16-day onchain vote, an eight-day L2 waiting period, an L2-to-L1 message finalization step of typically at least a week, and a final three-day L1 wait before execution (in total, requiring an additional 35 days).
- Freeze Context: On April 20, Arbitrum’s Security Council used its admin privileges to seize ETH illicitly gained from the Kelp DAO exploit, which it sent to a DAO-controlled address that can only move funds with Arbitrum governance approval.
- Restraining Order: Last week, lawyers representing the victims of North Korean terror (who are owed hundreds of millions of dollars in unrecovered court-awarded damages) notified Arbitrum DAO that they had obtained a restraining order for the frozen ETH, targeting seized assets which had momentary fallen under the control of suspected DPRK hackers. Although an Aave-adjacent entity subsequently filed for an emergency hearing to vacate the restraining order, a final court ruling has yet to take place.
- Potential Liability: Failure to comply with this restraining order by moving the funds prior to a final court decision may yield disastrous legal consequences and unlimited personal liability for members of the Arbitrum DAO. Although the governance proposal to move the frozen ETH contains indemnification protections from
Aave Labs, it is unlikely that an extralegal agreement will provide protection in court and unclear whether Aave Labs can absorb the full financial fallout if the case ends unfavorably.
