Original author: Lila, BlockBeats
Reposted: Luke, Mars Finance
Latest progress
In April this year, the decentralized betting platform ZKasino in the ZK ecosystem was embroiled in a 'runaway' scandal: altering the website's activity description, refusing to refund users' staked ETH for participating in activities, shutting down Telegram speaking privileges, canceling the Dubai offline meeting, and unilaterally transferring user funds to Lido for staking... Many users suspect that ZKasino has already 'soft rug'. On May 28, ZKasino's official response stated that it had initiated a 2-step bridging refund process, and bridge participants could register and bridge back their ETH at a 1:1 ratio. They will collect registration data in the following days and issue a new announcement as soon as possible, providing data for public verification.
However, by August 14, the previously 'runaway' decentralized entertainment platform ZKasino had still not processed refunds, and the funds raised by investors remained in the original two addresses.
On November 23, according to on-chain data analyst Yu Jin's monitoring, ZKasino's address began to misappropriate 'funds prepared to be refunded to users' for leveraged long positions on-chain. They deposited 5,270 ETH into Aave as collateral to borrow 11.589 million DAI, and subsequently increased their position by 3,500 ETH.
On November 28, ZKasino continued to lend 9.36 million DAI to purchase 2,603 ETH. They deposited 10,535 ETH from users into Aave as collateral and have cumulatively lent out 53.77 million DAI to purchase 15,645 ETH for leveraged long positions. The average price of this part of ETH bought through leverage is $3,437. With the surge of ETH, the ZKasino project party's use of users' ETH as collateral for leveraged long positions has already made an unrealized profit of $3.22 million.
From on-chain data, ZKasino is not 'unable to repay', but is openly choosing to 'profit from user assets'. Every move ZKasino makes is extracting user trust and assets, which is completely contrary to the original intention of decentralization and transparency. The ZKasino project party is using user funds for high-risk operations to earn unrealized profits while ignoring the issue of returning user funds, which undoubtedly constitutes a secondary harm to the victims.
The timeline of the ZKasino incident
Time goes back to April 19, when several community users discovered that after the ZKasino staking activity ended, ETH refunds were still not opened. Subsequently, through Wayback Machine, it was found that ZKasino had deleted the sentence 'Ethereum will be refunded and can be bridged back' from the Bridge funds page on April 18, causing user panic and questioning whether it was a premeditated 'runaway'. Users who participated in the staking activity flooded ZKasino's official Twitter to inquire, and Telegram also became a rights protection battleground, but soon ZKasino team members closed the Telegram speaking privileges.
On April 20, the MEXC trading platform, which was originally scheduled to launch ZKasino (ZKAS) on that day, announced a delay in the launch and withdrawal of funds, and ZKAS deposits were temporarily halted. MEXC staff responded to the 'runaway' allegations against ZKasino saying, 'We are just one of the investors, the actions of the project party have nothing to do with us, and we, as investors, are also victims.'
Perhaps due to pressure from multiple parties, ZKasino finally made a brief response: There are currently many FUD rumors. The ZKasino network will continue to go live, which was previously delayed (the mainnet) due to the exchange listing.
However, users are not buying this simple response. 'When will refunds be made?', 'Is it a soft rug?', 'Why has the mainnet refund description changed?' has become the main conflict.
On April 21, according to on-chain analyst Yu Jin's monitoring, ZKasino transferred 10,515 ETH that users bridged into ZKasino to a multi-signature address, which was later transferred to Lido. This ETH was bridged in by users for mining, but the ZKasino project party modified the website description, forcibly converting users' deposited ETH into their platform tokens.
On April 22, Big Brain Holdings, which had previously been disclosed as one of ZKasino's investment institutions, issued a statement 'refuting rumors', denying any involvement in ZKasino's financing.
As of now, users' concerns seem to be gradually 'substantiated'. Some users have also noticed that as early as March 16, Kedar, the founder of the Ethereum Layer 2 DEX project ZigZag, had warned that ZKasino seemed to have issues. In Kedar's tweet, he mentioned that most of ZKasino's revenue was fabricated, and users should be cautious about participating in their ICO activities.
Currently, ZKasino's latest tweet only announced the next step of the project: 'All ZKasino games will be moved to a new chain - and will still be retained on Arbitrum and Polygon. A native DEX and stablecoin will be launched soon. The first batch of ZKAS has been distributed to bridge participants.'
However, there were no congratulations or celebrations in the tweet replies, only users repeatedly asking: 'When will refunds be made?'
The viewpoints and suggestions of crypto VCs and KOLs
As a 'star' project on ZK, many KOLs participated and recommended this project during its initial launch. Now that such negative events have occurred, these KOLs have naturally become the focus of criticism. In the crypto field, how to avoid pitfalls when projects go wrong, and who should be held accountable?
ABCDE co-founder Du Jun (@DujunX):
Regarding the project party running away, I see everyone pursuing accountability with investment institutions and KOLs. I think while it makes sense, it’s somewhat absurd.
In the Crypto field, 95% of investment institutions are actually the weaker group, flattering project parties for quotas, flattering platforms for listings, and flattering LPs for money, they are truly sycophants.
Good projects have nothing to do with these institutions in the early rounds, let alone doing due diligence on the project team. If they can send money to the address, they should be thankful. KOLs may seem strong, and some projects even have KOL rounds, but they are actually at the bottom of the food chain with no voice. If KOLs don’t get paid to promote, it’s difficult to hold them accountable legally; they can only be morally condemned. Looking around, only the leading exchanges are at the top of the food chain, and other roles are merely there to play their part.
When the project party runs away, everyone looks to investment institutions and KOLs for rights protection. The institutions and KOLs also invested real money, so who should they turn to for rights protection? In this jungle society of Crypto, we must bear the consequences of our investment results, continuously learn to earn more and live longer.
Finally, I strongly condemn the runaway project party and the KOLs who promoted these runaway projects, hoping that unscrupulous projects will face legal sanctions and return coins as soon as possible, and that everyone's wallets will be safe.
Crypto art creator Niq (@niqislucky) replied:
Admit it: the vast majority of staking projects are just like putting money into a 'multi-signature address'. Unless the team is well-known, otherwise VC brand endorsements are almost the entire trust foundation for retail investors. KOLs? Responsible for spreading the word, or even taking the blame.
VC comparisons between each other are weak. If you can't get into a celestial gathering, you're just a noob. No matter how bad it is, retail investors are still completely crushed in terms of information/funds. Not on the same level, who are you writing for to empathize with? Retail investors only feel it's crocodile tears...
Crypto KOL 0xSatoshis (@0xSatoshis):
In light of ZKasino's soft rug status, I have reviewed all the staking projects today, with the exception of ATOM+OSMO+TIA+DYM staking.
Currently, the projects participating in staking are:
1) swell+eigenlayer+renzo+puffer (total within 20E)
2) blast initially invested 25E, now only retains 6E, with serious inflation of points
3) lista over 5,000 U
4) merlin staked Runestone
5) bouncebit less than 10,000 U
Next, I will periodically withdraw principal or reduce positions to reasonable levels (the so-called reasonable is to accept being zero). It feels like the risk of nested staking is so high now; one dollar staked in projects A/B/C/D/E becomes five dollars, but the market is still only one dollar. If something goes wrong in the middle, or a hacker attack occurs, the risk is continuous. Since there is still liquidity now, I might as well withdraw part of it.
Additionally, I want to emphasize again, do not trust KOLs' promotions, including me as a little investor. Just seriously study the content they share; as for whether to invest in the end, it must be decided by yourself. Investment is our own business, and KOLs provide us with content and information to assist our decision-making.
For newcomers, it’s still advisable to participate less in staking projects. Principal comes first; veterans should control positions and engage in low-cost high-reward strategies.
Brothers, you can earn less, but you cannot lose everything. Staking must control positions, I do not recommend using off-market leverage to borrow money for staking. In web3, nothing is impossible; do not always think that problems will not arise. Many people, including myself, thought so when FTX happened. When an avalanche occurs, no snowflake is innocent, so prepare your risk control in advance and be responsible for your wealth.
Crypto KOL killthewolf.eth (@0xkillthewolf):
The ZKasino incident is currently making waves. Although I did not invest or participate in staking in this project, a total of four people have asked me whether I should invest in this KOL round. I will write down my thoughts and insights here, hoping to help everyone filter projects in the future.
The valuation of the KOL round is $9 million, with TGE unlocking 15%. This condition seems like a no-brainer to rush into because the institutional valuation is $350 million, and I'm 40 times cheaper than the institutions. As for TGE only unlocking 15%, I only need $60 million of FDV at the opening to break even, and the institutions have already given a $350 million valuation.
The main two reasons I ultimately did not participate:
First, why is the valuation $350 million? Recently, Ethena, which went on Binance, had a valuation of $300 million, and Puffer Finance had a valuation of $200 million. Why can ZKasino, a gambling platform, be valued at $350 million? Because of this valuation figure, I have doubts about this round of financing package.
Second, the project party claims revenue of 8 million, although everyone defaults that this figure is somewhat inflated. I still checked the addresses of the top 20 users in terms of platform betting volume, all of which are suspected to be accounts controlled by the project party inflating the volume.
Third, the founder's character is very questionable. Previously, their official account used a bloody video of a murder case as a joke for marketing, which caused quite a stir at the time. @zachxbt has also exposed various things this person has done: https://x.com/zachxbt/status/1731025316204745113
Therefore, from my perspective, this project has a fake valuation, fake revenue, bad character, and no conscience, so in the end, I did not participate and was fortunate to avoid a big pit.
