Arbitrum delegates approved the release of $71 million in ether frozen after last month’s Lazarus-linked rsETH exploit, creating a direct clash between decentralized governance and an active US court battle over who owns the funds.
The on-chain vote, which closed Friday afternoon Hong Kong time with more than 90% support, approves the release of 30,765 ETH frozen by Arbitrum’s Security Council following the April 18 exploit in which attackers used unsupported rsETH tokens as collateral for Aave to borrow around $230 million in ETH from the protocol.
The funds are earmarked for a coordinated industry recovery effort led by Aave, KelpDAO, LayerZero, EtherFi and Compound, with the goal of healing affected users.
But the frozen ether is also at the center of an escalating legal dispute in Manhattan federal court.
Last week, attorney Charles Gerstein, who represents families with about $877 million in unpaid terrorism judgments against North Korea, served a restraining order on the Arbitrum DAO, arguing that the frozen ETH constitutes North Korean property because the exploitation has been widely attributed to Pyongyang’s Lazarus Group.
It triggered an acute legal battle.
Aave moved earlier this week to vacate the hold notice, arguing that the assets belong to innocent users, not North Korea, and warned that continued delays risk “cascading liquidations” and broader instability across decentralized financial markets.
Gerstein fired back on Tuesday, claiming the exploit was not theft but fraud, meaning the attackers gained legal ownership of ETH by defrauding Aave’s lending markets with worthless collateral.
Friday’s government vote does not mean that the funds will move immediately.
Because the measure was structured as a constitutional AIP under Arbitrum’s governing framework, the transfer cannot be executed for at least eight days, giving the Manhattan court time to intervene before ETH moves.
Arbitrator delegates did not vote blindly to the legal risk either. The proposal included indemnity protection for the Arbitrum Foundation, Offchain Labs, members of the Security Council and government delegates against certain claims stemming from either freezing or releasing ETH, underscoring how unusual the stakes surrounding the vote had already become.
Speaking at Consensus Miami this week, Aave Labs Chief Legal and Policy Officer Linda Jeng said the exploit had already forced the protocol to rethink its risk framework and expand security standards beyond financial metrics to include cybersecurity, interoperability and technical architecture reviews.
Jeng, who worked as a regulator during the 2008 financial crisis, drew a contrast to the taxpayer-backed bailouts of traditional finance.
“In the financial crisis we had to bail out the banks,” she said. “Here we came together as an ecosystem to save ourselves.”
