TL;DR:
- Aave seeks to unfreeze the $71 million in ETH frozen by Arbitrum following the $293 million hack suffered by KelpDAO.
- A New York judge requested supplemental briefs because the protocol failed to clearly explain how compound losses would occur.
- The next hearing is set for June 5, with submissions from both parties extending through May 22.
A federal judge in New York delayed the decision on Aave’s emergency request to unfreeze $71 million in ETH linked to victims of the hack on KelpDAO, one of the largest attacks on DeFi protocols recorded this year.
The case is unfolding in the Southern District of New York and pits the company against law firm Gerstein Harrow LLP, which filed a restraining notice in early May alleging that its clients hold rights over those funds.
The protocol argued in its emergency motion that keeping the funds frozen could trigger liquidations and destabilize the DeFi market more broadly. However, Judge Margaret M. Garnett determined that Aave’s filing did not explain in sufficient detail how the so-called “compound losses” on user funds could materialize if the restraint remained in effect.
The Judge Demands Greater Precision and New Reports
In documents filed Wednesday, Judge Garnett acknowledged the complexity of the case and the difficulties faced by hack victims. She ordered both parties to submit supplemental briefs and outlined six points on which the court requires greater precision.
These include whether the hack transactions are governed by New York law’s shelter doctrine, the legal distinction between fraud and theft, what interest the hackers hold over the stolen assets, which law determines creditor priority over the frozen funds, and whether establishing a constructive trust as a judicial remedy would be appropriate. The court also asked whether Aave or Arbitrum can identify individual victims in order to return assets on a proportional basis.
Aave and Kelp Chart the Path Toward rsETH Recovery
Aave and Kelp announced they are making consistent progress toward restoring the rsETH token’s backing. The hacker’s tokens were burned on Arbitrum, while the lost assets, valued at approximately $278 million, will be restored over the next two weeks using funds from the Aave Recovery Guardian multisig wallet. Once the associated smart contracts are reactivated, normal rsETH operations will be fully restored.
