A New York federal judge has delayed ruling on Aave’s emergency request to unfreeze $71 million in ETH frozen on Arbitrum. That is according to documents filed Wednesday in the Southern District of New York. The funds were locked after the $293 million Kelp DAO hack. Judge Margaret Garnett ordered both parties to submit supplemental briefs addressing six complex legal issues before proceeding. The case is now pushed into June. The funds stay locked for now.
The dispute centers on whether Aave can access the frozen assets to support recovery efforts. It also asks whether the freeze could harm protocol users. Law firm Gerstein Harrow LLP filed a restraining notice on behalf of clients claiming a potential legal interest in the assets. That’s what triggered the freeze.
Judge Garnett stated that Aave hadn’t clearly explained how “compounding losses” would occur. The technical and legal complexity prompted her to request additional briefing on six specific issues.
The court wants clarity on several questions. Does New York’s shelter principle apply here? How does fraud differ from theft in this context? What about creditor priority? Are constructive trust remedies possible? Can victims be identified for pro rata repayment? The parties must submit their briefs by May 22. A hearing is scheduled for June 5.
Broader recovery efforts are moving forward. Aave and Kelp are working together on restoration. The attacker’s rsETH on Arbitrum has reportedly been burned. Approximately $278 million in lost tokens will be restored over the following two weeks. The funds come from Aave’s Recovery Guardian multisignature wallet.
The case illustrates the growing intersection between decentralized finance protocols and traditional legal systems. It’s particularly relevant for recovering assets after exploits. The outcome could establish important precedents. How are frozen stolen crypto assets handled in court? Who gets priority over disputed funds? Can DeFi protocols intervene quickly during crisis situations?
The legal questions highlight several tensions. Protecting hack victims. Preserving market stability. Defining ownership when stolen cryptocurrency moves across decentralized systems. Courts are increasingly being asked to resolve disputes that blend cutting-edge technology with centuries-old legal principles. Traditional frameworks weren’t designed to address this. DeFi continues to mature. The challenges keep coming.
