REGULATION | Leading Crypto Lender Says the DAO Crypto Seizure Could Destabilize DeFi Markets

Decentralized finance lender, Aave, has asked a U.S. court to block the potential seizure of about $71 million in cryptocurrency arguing the assets belong to users affected by a recent hack rather than to North Korea-linked actors, according to a court filing.

The emergency motion, filed in the U.S. District Court for the Southern District of New York, challenges a restraining notice that froze roughly 30,766 ether held on the Arbitrum DAO network. The order was sought by plaintiffs attempting to enforce long-standing terrorism judgments against North Korea.

The dispute stems from an April 2026 exploit involving Kelp DAO, in which attackers used compromised assets to borrow large amounts of cryptocurrency from Aave. Members of the Arbitrum ecosystem later intercepted part of the stolen funds, worth about $71 million, with the intention of returning them to affected users through a broader industry-led recovery effort.

However, creditors holding more than $800 million in unpaid U.S. court judgments against North Korea argue the assets can be seized, citing allegations that the attack was carried out by the state-linked Lazarus Group.

Aave said in its filing that the restrained funds are recovered assets that should be returned to victims, not treated as property of the attacker. The company argued that allowing the seizure would harm users and undermine efforts to stabilize the platform and the greater DeFi markets following the exploit.

Lawyers for Aave also warned the freeze could disrupt broader recovery efforts coordinated across the decentralized finance sector and potentially trigger wider market stress if users remain unable to access their funds.

The lender is seeking an expedited hearing and temporary relief from the restraining notice. Alternatively, it has asked the court to require the plaintiffs to post a bond of up to $300 million to cover potential damages if the freeze remains in place.

The case highlights growing tensions between decentralized finance governance and traditional legal enforcement, particularly as courts grapple with how to treat crypto assets linked to sanctioned states or cybercrime.

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