Judge delays Aave’s bid to unfreeze $71M after Kelp hack

A New York judge has pushed back a decision on Aave’s emergency request to unfreeze $71 million in crypto tied to victims of the $293 million Kelp DAO hack. Judge Margaret M. Garnett of the Southern District of New York said Aave did not fully explain how delaying the unfreezing could cause compounding losses for users. The new hearing is set for June 5.

What happened with the frozen funds

The funds in question are $71 million in ETH that Arbitrum froze after the Kelp DAO hack earlier this year. Aave wanted access to this money to help with recovery efforts. But Gerstein Harrow LLP, a US law firm, filed a restraining notice in early May, claiming its clients have a right to the funds. Aave then filed an emergency motion to unlock the money, warning that user liquidations and DeFi market instability could follow if the freeze remained.

Judge wants more details

In court documents filed Wednesday, Judge Garnett noted the case is complex and acknowledged risks for victims. She called for supplemental briefings from both sides. She listed six specific points where more information is needed. These include whether the hacking transactions fall under New York’s shelter principle, the legal difference between fraud and theft, what interest hackers have in stolen assets, which law controls creditor priority over frozen assets, whether a constructive trust would be an appropriate remedy, and whether Aave or Arbitrum can identify individual victims to return assets on a pro rata basis.

Aave and Gerstein Harrow now have until May 22 to submit their briefs. The next court hearing is scheduled for June 5.

Broader recovery efforts continue

The case comes as Kelp DAO and Aave push forward with recovery plans. On Tuesday, they announced steps to restore backing for rsETH. The hacker’s rsETH have been burned on Arbitrum, and lost tokens worth about $278 million will be restored over the next two weeks using funds from the Aave Recovery Guardian multisignature wallet. Once the related smart contracts are reactivated, all rsETH uses should return to normal.

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