I just learned about a rather complex situation in Arbitrum DAO, which appears to be a direct conflict between two groups of victims.

Basically, a major hack happened a month ago—about 30,765 ETH were stolen due to a vulnerability in Kelp DAO. The Arbitrum Security Council froze those funds, and now the DAO plans to return them to rsETH depositors. But then an attorney representing victims of North Korean terrorism appeared and filed a notice under New York State laws, demanding that the withdrawal of funds be blocked.

Why? Because U.S. authorities linked the Lazarus group, which carried out the hack, to North Korea. So, by the attorney’s logic, these ETH are North Korean property that could be used to satisfy court judgments. And there are quite a few such judgments—totaling around $877 million. They are tied to the 1972 Lod Airport massacre, the 2000 kidnapping of an American priest, and the 2006 war, in which Pyongyang allegedly armed Hezbollah.

So you end up with a dilemma. On one hand, there are people who lost their funds in DeFi and are waiting for them to be returned. On the other hand, families have been waiting 20-30 years for at least some compensation, and here they finally see a chance to recover something through the seized/frozen crypto assets.

Arbitrum delegates are divided. Some believe that ETH is stolen property and that it simply needs to be returned to rightful owners under the law. Others say this shifts North Korea’s debt burden onto innocent people. Plus, there’s the issue of daily losses for Aave users, whose positions are locked.

The legal mechanism here is CPLR §5222(b) under New York law, which allows assets to be frozen without a prior court order. Ignoring this could lead to being charged with contempt of court.

The complication is that Arbitrum DAO is not a company with a clear legal status, so the risk of liability could fall on specific individuals whom the court determines to be controlling the funds.

Overall, it’s an interesting story about how blockchain and traditional law collide in the most unexpected situations. The CoinDesk 100 index fell 1.5% yesterday, so the overall market sentiment isn’t very positive. Bitcoin is trading around 81,000, mainly due to tensions in Iran and movements in the stock markets.