A federal judge in New York has not yet issued a final ruling on Aave’s emergency application to freeze cryptocurrency worth $71 million found to belong to victims of the Kelp DAO attack. Judge Margaret M. Garnett stated that she found the level of detail in the current application documents insufficient and requested additional information from the parties.
Case process and opinions of the parties
The case came to the fore after the attack on the decentralized finance platform Kelp DAO this year, which resulted in a loss of approximately $293 million. While there was a significant shock in the cryptocurrency market after the incident, the Aave team wanted to unfreeze the $71 million Ethereum (ETH) frozen by Arbitrum. The reason for this was that user balances could quickly melt away and cause serious losses in the decentralized finance market due to a domino effect.
However, the US-based law firm Gerstein Harrow LLP joined the case and stated that its clients had a claim on these funds and filed a legal notice against the release of the funds. Aave, on the other hand, made an urgent application to the court for the release of the funds.
Request for additional information from the judge
Judge Garnett noted that in the relevant documents, Aave had failed to provide a sufficient and clear explanation of how user damages could “snowball” in freezing funds. The judge granted an additional two weeks for the parties to present their views in more detail. In addition, it was emphasized that due to the complexity of the process, new information is needed for both the victims and the stability in the market.
In light of the arguments presented by the parties in a fast and limited time period, the court stated that Aave LLC and protocol users may be at risk of short-term loss and that detailed information was required due to the complex picture in the file and requested additional file submission.
According to the court, there are six main topics to be evaluated: Headings such as whether the attack is within the scope of New York’s protective rule, the legal distinctions between fraud and theft, the nature of the interests on the hacked assets, the law under which creditor priorities will be determined, whether the “constructive trust” application will be appropriate and whether the assets can be distributed equally to the victims will become clear with the new documents to be submitted.
Aave and Gerstein Harrow LLP will submit their new files to the court by May 22. The hearing will be held on June 5.
Repayment steps and developments in Kelp DAO
After the Kelp DAO attack, there was a huge crypto loss in the protocol. Aave and Kelp DAO teams decided to work together to compensate for rsETH assets affected by the attack. The rsETHs held by the hacker in the Arbitrum ecosystem were burned.
It was announced that the lost tokens worth approximately $278 million will be refunded to the victims within two weeks from Aave’s multisig wallet called Recovery Guardian. After the refund, the associated smart contracts are expected to be reactivated and the system will return to normal.
The development set an important example in the decentralized finance sector on how to manage hacking cases and what legal processes to follow in freezing funds.
