Court orders new briefs on $71M frozen ETH in Aave/Kelp DAO dispute
A New York federal court ordered Aave and law firm Gerstein Harrow to file supplemental briefs over ownership of $71M in “frozen ETH” tied to the Kelp DAO hack, with deadlines of May 22 and a June 5 rehearing. Judge Margaret Garnett questioned Aave’s justification for keeping the frozen ETH in custody, citing insufficient explanation of how continued holding could affect potential losses, and asked for clarification on six legal issues, including the legal characterization of the stolen assets under U.S. law and creditor-claim priority.
A May 9 ruling had allowed transfer of the funds from the Arbitrum network to an Aave-controlled wallet, but Aave is still barred from using or distributing the assets until final judgment. Gerstein Harrow represents creditors with an $877M uncollected terrorism-related judgment against North Korea and argues the frozen ETH is traceable to the Lazarus Group and should be recoverable.
For crypto traders, the main signal is elevated legal/regulatory uncertainty for sanctions-linked cross-border crypto asset recovery. The market impact on ETH is likely muted because $71M is small versus total liquidity, but headlines around the May 22 filings and June 5 rehearing could still create episodic volatility in ETH and DeFi risk sentiment.
Neutral
This ruling raises procedural and legal uncertainty around sanctions-linked frozen ETH. However, because the amount ($71M) is small relative to overall ETH liquidity, it is unlikely to drive sustained spot-price moves. The next catalysts are the May 22 supplemental briefs and the June 5 rehearing, which can trigger short-lived volatility if the court’s questions lead to stronger constraints on how Aave (and related parties) can handle the assets. Longer-term, the case could influence how U.S. courts interact with DeFi governance and custody mechanics in recovery scenarios, but the near-term effect on ETH price is expected to remain limited.