A New York court has ordered AAVE to clarify the mechanism of cumulative losses before a hearing on June 5, while $278 million of victims' assets are being recovered concurrently.
Judge Margaret M. Garnett of the Southern District of New York has delayed a decision on AAVE 's emergency petition to unfreeze $71 million worth of ETH, requiring both sides to submit additional documentation by May 22 and setting a new hearing date for June 5. The case stems from one of the most serious DeFi attacks of the year, the $293 million Kelp DAO mining operation.
The legal developments began in early May when the law firm Gerstein Harrow LLP filed a restraining notice against the ETH that Arbitrum had frozen, arguing that their clients had the right to claim the asset. AAVE responded with an urgent petition, warning that if the funds were not unlocked in time, the risk of user liquidation and widespread instability in the DeFi ecosystem was real.
However, Judge Garnett argued that AAVE had not adequately explained the mechanism by which “cumulative losses” would arise if the lockdown remained in effect.
Six key legal points the court requested clarification on.
The court posed six key questions that both sides were required to answer in their supplemental submissions. These issues included whether the hacking transactions were subject to the New York law's safeguards principle; the legal boundary between fraud and theft and the hacker's rights to the stolen property; the law governing the priority of creditors; the appropriateness of the court-established trust mechanism; and the ability to identify each victim for proportional reimbursement of assets.
These are fundamental questions, reflecting the reality that the traditional justice system is still struggling to build a suitable legal framework for handling cross-border and decentralized digital asset disputes.
Parallel to the court proceedings, the asset recovery process is progressing in a different direction. Kelp DAO and AAVE announced on Tuesday that they have completed crucial steps to re-establish the rsETH collateral: the hackers' rsETH has been burned on Arbitrum, while approximately $278 million worth of lost Token will be reimbursed within the next two weeks via the AAVE Recovery Guardian Multisignature wallet.
Once the relevant smart contracts are reactivated, all rsETH usage is expected to return to normal, regardless of the final court ruling.
