Arbitration delegates expressed support, in a non-binding sentiment check, for a project to release $71 million worth of ether frozen after the Lazarus-linked rsETH exploit last month, amid an active legal battle in the United States over ownership of the funds.
The first phase of the temperature check, which closed Friday afternoon Hong Kong time with over 90% support, favors the release of 30,765 ETH frozen by the Arbitrum Security Council after the April 18 exploit, when attackers used uncollateralized rsETH tokens as collateral on Aave to borrow approximately $230 million in ETH from the protocol.
The vote took place on an off-chain polling platform commonly used by crypto governance communities to gauge delegate sentiment before initiating formal action. As part of Arbitrum’s governance process, the outcome itself does not move funds or change the rules of the protocol. Think of it as a referendum of the people before any legislation is passed.
Any actual transfer would require a separate on-chain Constitutional Arbitration Enhancement Protocol (AIP), a formal governance proposal that can execute binding actions if approved by token holders. The strong support shown in the opinion poll suggests that delegates may be in favor of moving forward with a formal AIP on the proposal.
Frozen Ether is intended for a coordinated industry recovery effort led by Aave, KelpDAO, LayerZero, EtherFi, and Compound, aimed at making affected users whole.
But those same funds are also at the center of a growing legal dispute in Manhattan federal court.
Last week, attorney Charles Gerstein, representing families holding approximately $877 million in unpaid anti-terrorism judgments against North Korea, served a cease-and-desist notice on Arbitrum DAO, claiming that the frozen ETH constitutes North Korean property because the exploit was widely attributed to Pyongyang’s Lazarus Group.
This sparked an emergency legal battle.
Aave moved earlier this week to rescind the ban notice, arguing that the assets belong to innocent users, not North Korea, and warning that continued delays risk “cascading liquidation” and broader instability in decentralized financial markets.
Gerstein fired back on Tuesday, arguing that the exploit was not theft but fraud, meaning the attackers obtained legal title to ETH by tricking Aave’s lending markets with worthless collateral.
Friday’s governance vote does not mean funds will be transferred immediately.
Additionally, even if approved later on-chain, the proposed transfer would face Arbitrum’s standard withdrawal deadline of approximately eight days from L2 to L1 before any ETH can move, which could give the Manhattan court time to intervene.
Nor did arbitration delegates vote blindly on legal risk. The draft snapshot proposal included indemnification protections for the Arbitrum Foundation, Offchain Labs, Security Council members, and governance delegates against certain claims arising from the freezing or release of ETH, although these protections would only take effect if subsequently adopted through a successful on-chain constitutional AIP. Yet the inclusion of terms underscored how unusual the stakes around voting had already become.
Speaking at Consensus Miami this week, Linda Jeng, chief legal and policy officer at Aave Labs, said the exploit has already forced the protocol to rethink its risk framework, expanding collateral standards beyond financial metrics to include cybersecurity, interoperability, and technical architecture reviews.
Jeng, who worked as a regulator during the 2008 financial crisis, drew a contrast with traditional taxpayer-backed financial bailouts.
“During the financial crisis, we had to bail out the banks,” she said. “Here we came together as an ecosystem to bail ourselves out.”
CORRECTION (May 9, 2026, 02:00 UTC): Corrects that the metric was a snapshot and not a binding adjudication improvement proposal.
