A federal judge in Manhattan has modified a restraining order, clearing the way for Arbitrum DAO to hold a binding on-chain governance vote on transferring 30,765 ETH, worth roughly $71 million, to Aave LLC as part of a recovery plan for victims of the KelpDAO exploit. The decision removes an immediate procedural block on the funds while preserving competing creditor claims tied to terrorism judgments against North Korea.
The ruling matters because it connects a live DeFi governance process with a U.S. federal court order, creating a notable test case for how recovered on-chain assets can move into remediation workflows without automatically extinguishing parallel civil claims.
Court Order Reopens the Governance Path
Judge Margaret Garnett of the Southern District of New York modified a prior restraining notice that had blocked movement of the recovered ETH. The order specifically allows Arbitrum DAO to conduct a governance vote on whether to transfer the funds to Aave, with execution still dependent on the vote’s outcome.
The modification also protects governance participants from being treated as in contempt of the earlier injunction while carrying out the authorized vote. That protection reduces the immediate legal exposure for delegates and protocol actors involved in the recovery process.
Aave had filed an emergency motion to vacate the restraining notice, arguing that unrelated terrorism judgments should not attach to assets recovered on-chain for exploit victims. Its position relied on the property-law principle that a thief cannot confer lawful title, meaning stolen funds should not become available to unrelated creditors simply because they passed through illicit hands.
The competing claims were represented in court by Gerstein Harrow LLP, which asserts unpaid terrorism judgments totaling hundreds of millions of dollars. The judge’s order permits the governance process to move forward, but the creditors’ claims remain preserved for potential parallel litigation.
Recovery Plan Still Requires On-Chain Execution
The Arbitrum community had already shown strong support for releasing the funds. An earlier Snapshot poll recorded more than 90% delegate support, signaling broad governance backing for using the ETH in Aave’s recovery plan before the court modified the restraining order.
The court’s decision does not itself move the assets. A binding on-chain vote must still clear, and subsequent protocol actions by Aave and the DeFi United recovery vehicle named in the filings must occur before the recovered ETH can be routed into the remediation structure.
According to filings summarized by the order, the recovered ETH would represent the largest single contribution to a cross-protocol recovery effort. The plan is intended to help neutralize inflated rsETH supply and restore full backing for that instrument on Arbitrum.
KelpDAO has blamed the April 18 exploit on a LayerZero verifier configuration, while LayerZero has since issued an apology. KelpDAO has also reported a migration of assets to Chainlink’s CCIP as part of its mitigation response.
The decision highlights the operational tension between legal process and on-chain state changes. A court can authorize governance activity while leaving unresolved claims that may later affect downstream custody, settlement or asset ownership disputes.
The ruling is likely to influence how future recovery workflows are designed. Clearer custody chains, governance authorization records and legal documentation will become critical infrastructure for DeFi remediation, especially when recovered assets intersect with traditional court remedies.
