Aave Moves to Block $71M Crypto Seizure in U.S. Court, Warns of DeFi Fallout

Leading decentralized lending platform Aave has asked a U.S. federal court to stop an attempt by victims of North Korean terrorism to seize roughly $71 million in crypto frozen after last month’s rsETH-related exploit, escalating a legal battle that has already divided Arbitrum DAO.

In a filing submitted Monday in the Southern District of New York, Aave seeks to vacate a restraining notice served on Arbitrum DAO by lawyers representing judgment creditors of the Democratic People's Republic of Korea.

The protocol argues the frozen assets belong to its users—not North Korea—and warns that keeping them locked could cause “irreparable harm” to both Aave and the broader DeFi ecosystem.

At the center of the dispute is 30,765 ETH frozen by Arbitrum’s Security Council following the April exploit.

Attackers allegedly used improperly valued or unbacked rsETH as collateral on Aave, contributing to an estimated $230 million in ETH being withdrawn from the protocol. A portion of those funds was later intercepted and immobilized on Arbitrum, with plans to return them to affected users.

The legal clash hinges on a critical question: Does stolen crypto briefly held by hackers become their legal property?

Plaintiffs—three groups holding $877 million in court-awarded damages against North Korea—argue that it does.

They claim the attackers are linked to the Lazarus Group, a hacking collective widely believed to operate under Pyongyang, and therefore, the recovered ETH can be used to satisfy those judgments.

Aave’s legal team rejects that argument as “flatly wrong,” warning it would effectively punish innocent users while distorting established property law.

The filing stresses that the restrained ETH belongs to “completely blameless third parties,” and that temporary possession by a thief does not equate to ownership.

The protocol also challenges the attribution of the exploit to North Korean actors, calling such claims “conjecture” based on unverified reports.

Aave is asking the court to immediately lift the restraining notice—or at least suspend it while the case proceeds.

According to the filing, prolonging the freeze risks triggering broader instability, including cascading liquidations, liquidity outflows, and lasting disruptions to user positions.

The case could set a major precedent for the crypto industry. If courts allow recovered or seized digital assets to be claimed by external creditors, it may discourage future recovery efforts and complicate how DeFi platforms respond to exploits, where rapid coordination is often critical to minimizing losses.