Arbitrum DAO’s Bid to Return $71.1 Million in Frozen Kelp Hack Funds Stalls on North Korea Lawsuit

Arbitrum DAO’s effort to return funds frozen after the Kelp DAO hack has run into a new obstacle after a US court approved restrictions on transfers tied to North Korea litigation.

The Block reported on May 3 that the US District Court for the Southern District of New York approved a restraining notice barring movement of about 30,766 ETH, worth roughly $71.1 million, that Arbitrum DAO froze in connection with the case. The assets were frozen during the aftermath of the roughly $292 million Kelp DAO hack in April.

LayerZero previously identified the Lazarus Group, a hacking organization linked to North Korea, as the attacker. Plaintiffs holding unpaid judgments related to North Korea argued the funds were connected to Pyongyang and claimed a right to seize them.

The plaintiffs are terror victims who previously won judgments against North Korea. Their claims total about $877 million, excluding interest. They argue that assets tied to North Korea can be attached under the US Foreign Sovereign Immunities Act and the Terrorism Risk Insurance Act.

Within Arbitrum DAO, support has been building for prioritizing relief for hack victims. A recovery proposal led by Aave would transfer the frozen ETH to the DeFi United recovery fund to restore rsETH backing. More than 99% of votes cast support the measure.

Legal uncertainty remains. Some industry participants worry DAO voters could face personal legal liability over any decision to move the funds.

On-chain analyst ZachXBT criticized the lawsuit as “an aggressive strategy” to claim rights over recently hacked funds based on earlier judgments involving North Korea. Some DeFi developers, by contrast, argue the DAO should rely on an automated recovery contract instead of moving the funds directly.