Why did the New York judge delay Aave’s request to unlock $71 million in ETH?

Margaret M. Garnett said Aave did not fully explain how user losses would worsen if the restraining notice on the funds stayed in place. The court requested more detailed legal briefing before making a final decision.

What is the dispute over the frozen Ethereum funds?

The case centres on $71 million worth of Ethereum frozen on Arbitrum after the $293 million Kelp DAO exploit. Aave wants access to the funds to support recovery efforts, while another party claims legal rights over the assets.

Why does Aave want the funds released?

Aave argued that keeping the assets frozen could trigger liquidations, increase user losses and create broader instability within DeFi markets. The company said rapid access to the funds is important for recovery operations linked to the Kelp DAO hack.

Who is opposing Aave’s request?

Gerstein Harrow filed a restraining notice on behalf of clients claiming interests in the disputed assets. The law firm argues the frozen funds may belong to victims or creditors connected to the exploit.

What legal issues is the court now examining?

The judge requested more information on creditor priority, fraud versus theft distinctions and whether New York’s shelter principle applies to the hacking transactions. The court also wants clarification on whether frozen funds could eventually be distributed proportionally to victims.

What is the Kelp DAO exploit?

The Kelp DAO exploit was a major decentralised finance hack that resulted in losses of approximately $293 million. The incident became one of the largest DeFi security breaches of 2026.

What is rsETH and why does it matter in this case?

rsETH is a restaked Ethereum-linked token tied to the Kelp DAO ecosystem. Aave and Kelp DAO said the hacker’s rsETH tokens have already been burned on Arbitrum as part of broader recovery efforts.

How much money is being restored through the recovery process?

Aave and Kelp DAO said approximately $278 million worth of lost assets will be restored over the next two weeks through the Aave Recovery Guardian multisignature wallet. The recovery aims to rebuild the backing of rsETH.

Judge delays Aave bid to unlock $71M ETH

Written by Isaac FrancisPublished May. 14 2026Last Updated May. 14 2026

A New York judge postponed a decision on Aave’s emergency request to unlock $71 million worth of Ethereum connected to victims of the $293 million Kelp DAO exploit.

Aave had sought access to the frozen funds held on Arbitrum to support recovery efforts after the Kelp DAO attack, which ranks among the largest decentralised finance hacks of the year.

US law firm Gerstein Harrow opposed the motion after filing a restraining notice earlier this month, arguing that its clients hold legal claims over the disputed assets.

Judge Margaret M. Garnett said Aave had not sufficiently explained how “compounding losses” on user funds would occur if the restraining notice remained active, prompting the court to request additional submissions from both sides.

“The court recognises the risk of potential near-term harm to Aave LLC and Aave Protocol users,”

Garnett said while ordering supplemental legal briefing due to the complexity of the dispute and the limited timeline of earlier filings.

The court requested further clarification on issues including creditor priority, whether hacking transactions fall under New York’s shelter principle, distinctions between theft and fraud, and whether frozen assets could eventually be distributed proportionally to identified victims.

Aave and Gerstein Harrow must submit additional briefs by May 22 ahead of a new hearing scheduled for June 5, while Aave and Kelp DAO separately confirmed they had started restoring backing for rsETH after burning the hacker’s tokens on Arbitrum and preparing to replenish approximately $278 million through the Aave Recovery Guardian multisignature wallet.

At the time of reporting, Aave price was $96.92.