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KelpDAO Freeze on Arbitrum Fails as US Court Blocks $71 Million Recovery

The Arbitrum Security Council successfully seized 30.766 ETH from the KelpDAO hacker, but a US court order now prohibits the DAO from touching the $71 million in funds. The victim’s lawyer, representing North Korea, is attempting to claim the money based on a 2015 court ruling against Pyongyang.

This legal action halts Aave and Kelp DAO’s plans to compensate users affected by the April 18 hack. The freeze demonstrates how centralized governance steps can directly bring assets into the US judicial system.

Centralized Action, Centralized Consequences

The council froze the ETH last month after a bridge exploit drained $290 million from KelpDAO. The council coordinated with law enforcement and directed the funds into governance control.

Han Kim and Yong Seok Kim are US citizens whose relatives were murdered by North Korea. They won over $300 million in damages from Pyongyang in a 2015 ruling.

Their lawyer obtained an order on May 1 from the Southern District Court of New York. This order prohibits Arbitrum from transferring the seized assets.

LayerZero claims the hack was carried out by Lazarus Group, which directly linked the ETH to Pyongyang.

Aave Recovery Blocked by Legal Issues

Lawyer Gabriel Shapiro reviewed this lawsuit and stated that the freeze is fully enforceable, not just theoretical. The plaintiffs have obtained court approval under specific seizure laws, so the DAO does not have unilateral rights to transfer the assets.

“Arbitrum DAO is not allowed to do anything with KelpDAO’s funds at this time, until a divestment hearing… They must legally pursue it, not decide on their own what to do with the assets,” Shapiro said in a post on X.

This freeze hampers the Aave coalition, which has gathered ETH from Lido, Mantle, and EtherFi to support rsETH holders. Their plan depends entirely on recovering the seized funds through Arbitrum governance.

According to one of MegaETH’s economic leaders, this seizure exposes DAOs to claims they never anticipated.

Identifiable North Korean assets have legal standing, regardless of which protocol holds them.

Once a DAO seizes assets through centralized channels, those assets fall under the same legal regime as bank accounts.

The divestment hearing will determine the final control rights over the assets. Other ETH from the hack is still moving through money laundering channels.