One of the most notable recent developments in the cryptocurrency industry is that the Arbitrum community approved the release of $71 million worth of ether, which was frozen as a result of an attack linked to North Korea last month. Arbitrum stands out as an Ethereum-based second layer solution and is known for its decentralized governance model.
Decision by majority vote from Arbitrum
In the on-chain voting completed on Friday, Hong Kong time, more than 90 percent of the participants expressed their opinion in favor of resolving 30,765 ETH. The funds in question were frozen by the Arbitrum Security Council after the attack on April 18. At that time, it was stated that the attackers withdrew approximately 230 million dollars of ETH from the Aave platform, using unsupported rsETH tokens as collateral.
These ethers are intended to compensate users who have suffered losses as part of an industry recovery effort jointly carried out by Aave, KelpDAO, LayerZero, EtherFi and Compound.
Legal battle continues in US court
But the funds to be released are also at the center of a bitter legal dispute currently playing out in a federal court in Manhattan, New York. Last week, attorney Charles Gerstein filed a restriction notice with Arbitrum DAO on behalf of families holding nearly $877 million in unpaid terrorism damages against North Korea, arguing that the funds belonged to North Korea. This claim is based on the general view that the attack was largely carried out by Pyongyang’s famous cyber attack group Lazarus.
The Aave front demanded the cancellation of this restriction decision at the beginning of the week. The platform stated that the assets belong to innocent users, not North Korea, and pointed out that if the process continues, chain liquidity problems may arise in decentralized financial markets.
Gerstein, however, insists that the attack was not theft but a form of fraud. That is, he argued, the attackers gained legal ownership over worthless collateral.
How will the process proceed?
A governance vote at the Arbitrum does not mean an immediate transfer of funds. In accordance with the governance framework, the decision can be implemented after at least eight days. The purpose of this period is to give the court room to intervene.
In addition, the proposal noted that the Arbitrum Foundation, Offchain Labs, members of the Security Council and governance delegates should be provided with protection against certain legal claims that may arise from the freezing or release of funds. This detail shows the seriousness of the risks that arise after the vote.
Speaking at the Consensus event held in Miami, Aave Labs’ Legal and Policy Manager Linda Jeng stated that the attack changed the platform’s risk assessment approach. Jeng stated that the assurance criteria have been expanded to include cyber security, interoperability and technical infrastructure reviews, as well as financial indicators.
“During the financial crisis, we had to bail out the banks. Now, as an ecosystem, we have come together to save ourselves,” he said.
As Jeng emphasizes, unlike traditional financial systems, such decentralized protocols aim to overcome crises with intra-industry solidarity. It is a matter of curiosity how the case in Manhattan will conclude in the coming days.
