Arbitrum takes back $71m from Kelp DAO hacker: ‘We did not make this decision lightly’

The Arbitrum Security Council has frozen some $71 million stolen from decentralised finance app Kelp DAO, eliciting mixed reactions from the industry.

The security council is a 12-member group elected by the Arbitrum DAO. Its primary function is to address critical risks associated with the Arbitrum blockchain and its ecosystem.

On Tuesday, it used its powers to transfer 30,766 Ether tokens to an intermediary frozen wallet, making them inaccessible to the hacker.

“We did not make this decision lightly, there were countless hours of debates, technical, practical, ethical and political,” Griff Green, a member of Arbitrum’s Security Council, said.

“But all it takes for evil to triumph is for good men to do nothing, so today, we decided to do something.”

The move is controversial because it goes against core principles of the crypto industry.

Blockchains are supposed to be permissionless and immutable, meaning nobody can change, freeze or transfer another user’s assets without their permission.

Taking back the stolen assets from the Kelp DAO hacker, as Arbitrum’s security council did, violates these principles. Even if the ability to freeze assets is only intended for emergencies, it means the system isn't fully permissionless. Someone has the power to intervene.

The right thing to do?

The Kelp DAO hack has shaken the industry.

On Saturday, North Korean hackers stole $294 million from the DeFi app through a sophisticated scheme that used forged cross-chain messages to trick the app into releasing tokens when it shouldn’t have.

In the aftermath, investors withdrew over $15 billion from DeFi protocols amid renewed fears over DeFi security.

While reclaiming $70 million is a win for those impacted by the hack, not everyone is celebrating.

Dozens of critics argue that it sets a dangerous precedent.

If the security council is able to coordinate and take back funds in this instance, they say, what is stopping law enforcement agencies from compelling them to do so in the future when it suits their needs?

Yet many prominent industry figures also agree with the council’s move.

“Hard choice, but seems like the right thing to do,” Dan Robinson, general partner at crypto venture firm Paradigm, said. “Decentralisation is not a suicide pact.”

“Every cell of my being is meant to be against what Arbitrum just did. Yet I understand their decision,” Marc Zeller, founder of Aave service provider Aave-Chain Initiative, said.

“People getting their money back matters more than convictions that would allow unc Kim to walk away with a payday,” referring to the leader of North Korea, Kim Jong Un.

The $70 million in confiscated funds can only be moved by further action by Arbitrum governance, coordinated with relevant parties, a post from the official Arbitrum X account said.

Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at [email protected].