A U.S. federal court has ordered the freeze of 30,766 ether (approximately $71.1 million) held by the Arbitrum DAO, assets previously linked to the Kelp DAO exploit and attributed to North Korea’s Lazarus Group. The restraining notice, authorized by the U.S. District Court for the Southern District of New York on April 30 and served on May 1 through the Arbitrum governance forum, blocks any transfer of the funds while litigation proceeds.
The legal action was filed by plaintiffs holding unpaid judgments totaling over $877 million against North Korea under the Terrorism Risk Insurance Act and the Foreign Sovereign Immunities Act. The cases include the killing of Reverend Kim Dong-shik (awarded ~$330 million), Kaplan v. DPRK, and Calderon-Cardona v. DPRK, linked to North Korean attacks spanning decades. The plaintiffs argue that the frozen ETH constitutes property in which the DPRK holds an interest, citing blockchain attribution by LayerZero that tied the exploit to the Lazarus Group.
The dispute began on April 18 when a $292 million exploit drained 116,500 rsETH from Kelp DAO’s LayerZero-based bridge. LayerZero’s analysis attributed the breach to a compromise of RPC nodes and a 1-of-1 verifier setup, which allowed a forged cross-chain message to pass validation. On April 20, Arbitrum’s Security Council froze 30,766 ETH after tracing funds to addresses linked to the attacker, with law enforcement input confirming the exploiter’s identity. The attacker subsequently moved funds through Arbitrum and converted assets into Tron-based USDT to fragment the transaction trail.
Simultaneously, the Arbitrum DAO opened a Snapshot vote on April 30 to transfer the frozen funds to a recovery initiative backed by Aave Labs, Kelp DAO, LayerZero, EtherFi, and Compound. The proposal aims to route the ETH into a multi-signature wallet managed by ecosystem participants and Certora, with over 99% support as of publication. However, the court-ordered restraining notice now bars any transfer, creating a direct conflict between decentralized governance and judicial authority.
Aave Labs included an indemnification clause in the proposal to cover the Arbitrum Foundation, Offchain Labs, and Security Council members against claims tied to the freeze or release of funds, but the applicability under an active court order remains unclear. The vote is set to close on May 7, while the restraining notice remains in effect pending further proceedings.
The case marks a pivotal test for DeFi governance, raising questions about whether crypto assets linked to sanctioned states can be seized to satisfy terrorism judgments. For protocol governance, it suggests that decentralized decisions may carry legal consequences beyond code. Blockchain traceability offers a rare enforcement opportunity for victims, but for DeFi protocols, it underscores unresolved legal questions about how decentralized systems interact with traditional courts.
