A federal judge in New York has delayed a decision on Aave’s emergency motion to unfreeze 30,766 ETH, worth roughly $71 million, setting a June 5, 2026 hearing and ordering supplemental briefs by May 22. The delay keeps one of DeFi’s most consequential asset-recovery disputes in legal limbo while the court weighs ownership, creditor priority and the treatment of funds tied to alleged state-linked hacking.
Judge Margaret M. Garnett said the initial filings did not sufficiently explain how continued restraint of the assets would create “compound losses” for users. Her order forces the parties to provide a clearer factual and legal record before the court decides whether the frozen ETH can move into Aave’s recovery process.
Frozen ETH Sits Between Recovery and Creditor Claims
The assets at issue were frozen on Arbitrum after the April 18, 2026 Kelp DAO exploit, which public reports and court papers say produced roughly $292 million of unbacked rsETH. The Arbitrum DAO Security Council’s freeze created a rare collision between on-chain emergency governance and off-chain judicial control.
Aave argues the ETH should be released so it can address roughly $280 million of bad debt linked to the exploit and avoid cascading liquidations across the protocol. Its emergency motion frames the frozen collateral as essential to protecting users and limiting systemic DeFi losses.
Opposing the unfreeze are victims represented by Gerstein Harrow LLP, who hold roughly $877 million in default judgments against North Korea. They argue that the alleged Lazarus Group attribution gives them a claim to the contested assets, creating a direct conflict between exploit remediation and judgment enforcement.
The court has asked the parties to address whether New York’s shelter principle applies, whether the exploit should be treated as fraud or theft, what priority creditors may hold, whether a constructive trust is appropriate, and whether Aave can identify and return assets to victims on a pro rata basis.
DeFi Recovery Meets Legacy Legal Doctrine
The dispute turns on difficult legal intersections. Creditor priority, constructive trust claims, state-sponsored hacking allegations and decentralized governance are now converging around a single pool of frozen on-chain assets.
The court acknowledged the operational risk, noting that it recognizes potential near-term harm to Aave LLC and Aave Protocol users. That point matters because immobilized collateral can transmit losses through lending markets, especially if blocked assets force liquidations elsewhere.
For DeFi participants, the case could clarify whether U.S. courts will allow legacy legal judgments to reach funds that moved through bridges, DAOs and decentralized protocols. The answer will shape how future recovery plans are structured after major exploits.
The next milestone is the May 22 supplemental-brief deadline, followed by the June 5 hearing. The outcome will give custodians, compliance teams and protocol operators a practical legal signal on contested funds, attribution and cross-border asset claims.
