I encountered a quite wild story in Arbitrum DAO that illustrates how complex questions around frozen funds in crypto can be. A lawyer representing terrorism victims literally filed a legal notice to block the release of 30,765 ETH that had been frozen after the Kelp DAO hack in April. His argument: these funds are linked to the North Korean group Lazarus, which is behind them.

The whole situation is tied to three court rulings against North Korea totaling about $877 million. These are longstanding cases: the Lod Airport massacre in 1972, the kidnapping of an American priest in 2000, and arms shipments to Hezbollah in 2006. The plaintiffs won in court, but North Korea has never paid compensation. Since recovering assets from a sovereign state is nearly impossible, families are seeking any property of North Korean entities to enforce the rulings.

Lawyer Charles Gerstein filed a restriction notice under New York law, claiming that if U.S. authorities linked Lazarus to North Korea, then the frozen ETH is actually North Korean property. If the court agrees, the families will have priority over the original rsETH holders who lost their deposits in the hack.

A heated debate has begun within Arbitrum DAO itself. Delegate Zeptimus objects that this is stolen property that should be returned to DeFi victims, not turned into a payment for old court rulings. He points out: a thief does not acquire rights to stolen property, so North Korea has no interest in these funds. Other delegates, like Entropy Advisors, vote for the release, considering the daily losses of Aave users with blocked positions.

The core of the conflict is that Arbitrum DAO is not a legal entity with a clear status. The risk falls on whoever the court recognizes as controlling these frozen ETH. Ignoring the legal notice could lead to contempt of court charges. Essentially, it’s a choice between two groups of victims: depositors who lost funds in the hack, and families with longstanding court claims. Each side has strong arguments, but both demands cannot be satisfied simultaneously. The situation shows how blockchain protocols face the real legal system, and the outcome could set a precedent for the entire industry.