Aave argues frozen ETH belongs to users, not claimants, as legal uncertainty delays DeFi recovery efforts.
Aave has moved quickly to challenge a court order freezing millions in recovered ether. The dispute follows a recent exploit linked to Kelp DAO that shook DeFi markets. Legal claims tied to unrelated terrorism cases have added complexity to the situation. Aave now argues the freeze risks delaying restitution for affected users.
Legal Battle Erupts Over Kelp DAO Funds as Aave Defends User Ownership
Aave has filed an emergency motion in a U.S. federal court to lift a restraining order on roughly $73 million in ether. The funds were recovered after the April 18 Kelp DAO exploit.
Aave LLC has filed an emergency motion to vacate a restraining notice served on Arbitrum DAO on May 1, 2026 that attempts to seize approximately $71 million in ETH belonging to victims of the April 18 exploit.
A thief does not gain lawful ownership of stolen property simply by… pic.twitter.com/NwgKIdU1L7
— Aave (@aave) May 4, 2026
Court action stems from a May 1 order preventing Arbitrum DAO from moving the assets. Plaintiffs tied to older terrorism judgments against North Korea seek to claim the funds as restitution.
Aave disputed that position in a counterfiling, arguing that the claims rely on unproven links between the exploit and the Lazarus Group. It also states that possession of stolen crypto does not establish ownership.
Aave founder reinforced that argument. He said recovered funds still belong to affected users. He compared the case to stolen goods later retrieved by a third party.
“A thief does not own what he steals. These funds belong to the affected users they were stolen from—full stop,” he noted.
DeFi United Faces Setback as Court Freeze Blocks $327M Recovery Pool
Attack details show a flaw in a cross-chain bridge tied to rsETH. The attacker used unbacked collateral to borrow about $230 million in ETH from Aave users. Shortly after, Arbitrum intercepted 30,766 ETH and set it aside.
Recovery efforts expanded through “DeFi United.” The initiative has gathered over 137,700 ETH, valued at nearly $327 million. Distribution plans remain pending due to the court order.
Aave’s filing stresses that immobilized assets were taken from users, not owned by any attacker. It warns that continued restrictions could harm victims awaiting repayment.
The protocol has asked the court to vacate the order. As an alternative, it seeks to require plaintiffs to post a $300 million bond. That measure would cover potential damages if the freeze persists.
The outcome of the case could set a precedent for how recovered crypto assets are treated in cross-border legal disputes.
