Aave Fights to Block $71M Crypto Seizure in North Korea Legal Clash

One of DeFi’s biggest platforms, Aave, is now facing a major legal battle over $71 million in frozen crypto. The company has filed an emergency request in a U.S. court to unlock the frozen Ethereum.

At the center of the case is a key question, who truly owns these funds, the users who lost money, or any government or outside party?

Aave Challenges Court Order Over Frozen Funds

According to court filings, Aave has filed an emergency request to lift a court order freezing about $71 million in Ethereum.

The issue started after a major exploit linked to KelpDAO. On April 20, Arbitrum’s Security Council froze 30,766 ETH tied to the attacker. This was seen as a rare success, since stolen crypto is usually hard to recover.

However, the situation changed on May 1. Lawyers representing U.S. families with terrorism-related claims against North Korea stepped in and secured a restraining order on the funds.

These groups are seeking to recover part of $877 million in unpaid court judgments. They argue the hack may be linked to North Korea’s Lazarus Group, and therefore, the frozen assets should be treated as state property and used to settle those claims.

Now, the case has turned into a legal battle over who truly owns the funds — the affected users or outside claimants.

Aave Says the Seizure Is Wrong

Aave LLC filed an emergency motion in the Southern District of New York on Monday seeking to vacate the restraining notice served on Arbitrum DAO, in a 29-page memorandum filed before Judge Margaret M. Garnett by Morrison Cohen LLP.

The filing lays out three demands;

1. Lift the restraining notice immediately
2. Schedule an emergency hearing and temporarily suspend the freeze in the meantime
3. If the freeze stays, make the plaintiffs post a cash bond of at least $300 million to cover the harm the freeze is causing.

Aave founder Stani Kulechov said,

“A thief does not own what he steals. These funds belong to the affected users, they were stolen from.”

What Happens Next?

On one side, DeFi platforms like Aave want to return funds to affected users through recovery initiatives such as “DeFi United.” On the other side, plaintiffs are using U.S. courts to claim those same assets under existing legal judgments.

Aave has warned that keeping the funds frozen could harm users further and even disrupt broader DeFi stability.

Meanwhile, if Aave succeeds, it could strengthen the case for user-first recovery in DeFi hacks.