Aave, one of the leading lending protocols in the decentralized finance (DeFi) ecosystem, applied to the federal court in the USA to prevent the transfer of approximately $71 million worth of crypto money, which was frozen after the rsETH-based cyber attack on Arbitrum last month, to victims allegedly linked to North Korea. This step by Aave brought about a new phase in the case that caused divisions of opinion in the Arbitrum community.
What does the Aave protocol advocate?
Aave is known as a protocol where users’ assets are protected and is one of the most used platforms in the DeFi field worldwide. With the petition he submitted to the Southern District of New York court through his own lawyers, he requested the removal of the legal injunction delivered to the Arbitrum DAO. The company argued that the frozen funds belonged to individuals using the Aave protocol, not North Korea.
Aave states that if the funds continue to intervene, both its own ecosystem and the overall DeFi market will suffer serious damage.
“The frozen ETH belongs entirely to unrelated third-party users. The fact that the assets are in the hands of thieves for a short time does not change the legal right of ownership,”
In the petition where the statement is made, it is argued that the association of North Korean actors with the attack is based on unverified news.
Basis of Developments and Course of the Case Process
In the attack in April, attackers used rsETH as collateral that was not adequately collateralized or properly valued. As a result, approximately $230 million worth of ETH was withdrawn from the Aave protocol. Some of these funds were frozen by Arbitrum’s security board; Plans were made to return it to affected users.
At the center of the case is the following question: Are the seized cryptocurrencies considered to be the property of cyber attackers, even for a short time?
The plaintiffs state that they have compensation orders against North Korea worth a total of $877 million, which were taken years ago. They also claim that it is widely accepted that the attackers are associated with North Korea’s cyber group called Lazarus, and say that the frozen ETHs can be transferred in exchange for these compensations.
Aave’s legal team argues that this approach seriously violates fundamental property principles and will cause victimization of innocent users.
Possible Impacts for the DeFi Ecosystem
Aave is asking the court to immediately lift the restraining order or suspend it until the case is concluded. It is emphasized that keeping assets frozen on Arbitrum inaccessible for a long time brings risks such as chain liquidity problems in the DeFi ecosystem, mass fund outflows from the market and permanent user losses.
The outcome of this case may not be limited to the current incident. If the courts accept the transfer of cryptocurrencies recovered as a result of attacks to creditors other than the victim, the possibility of future rescue operations of the sector becoming more complicated and the solution options narrowing in times of crisis has come to the fore.
