Author: Lila, BlockBeats
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In April this year, ZKasino, a decentralized betting platform in the ZK ecosystem, was deeply embroiled in a 'runaway' scandal: altering website activity descriptions, refusing to refund users' staked ETH, closing Telegram speaking permissions, canceling offline meetings in Dubai, and unilaterally transferring user funds to Lido for staking... Many users suspect that ZKasino has already 'soft rug'. On May 28, ZKasino officially responded that it has initiated a 2-step bridge refund process, where bridge participants can register and bridge back their ETH at a 1:1 ratio. They will collect registration data in the coming days and release a new announcement as soon as possible to provide verifiable data for the public.
However, as of August 14, the previously 'runaway' decentralized entertainment platform ZKasino has still not issued refunds, and the funds raised by investors remain in the original two addresses.
On November 23, according to on-chain data analyst Yu Jin's monitoring, the ZKasino address began to misappropriate 'funds prepared for user refunds' to leverage long ETH on-chain, depositing 5,270 ETH into Aave as collateral to borrow 11.589 million DAI, and subsequently increasing their position by 3,500 ETH.
On November 28, the ZKasino project team continued to lend out 9.36 million DAI to purchase 2,603 ETH. After depositing 10,535 ETH from users into Aave as margin, they had cumulatively borrowed 53.77 million DAI to buy 15,645 ETH to leverage long ETH. The average price of this portion of ETH purchased through leverage is $3,437, and as ETH surged, the ZKasino project team has misappropriated users' ETH as margin for leveraged long operations, which has now generated a floating profit of $3.22 million.
From on-chain data, ZKasino is not 'unable to repay', but rather has openly chosen to 'profit from user assets'. Every step ZKasino takes extracts user trust and assets, which completely deviates from the original intention of decentralization and transparency. The ZKasino project team uses user funds to earn floating profits in high-risk operations, yet ignores the issue of returning users' funds, which undoubtedly inflicts secondary harm on the victims.
Chronology of the ZKasino incident
Back to April 19, multiple community users found that after the ZKasino staking event ended, ETH refunds were not opened for a long time. Subsequently, through Wayback Machine, it was traced that ZKasino 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 premeditated 'to take the money and run'. Users who participated in the staking activity flooded ZKasino's official Twitter to inquire, and Telegram also became a platform for rights protection, but soon members of the ZKasino team closed the speaking permissions on Telegram.
On April 20, the MEXC exchange, which was originally scheduled to launch ZKasino (ZKAS) that day, announced a delay in the launch and withdrawal of funds; ZKAS deposits were also temporarily halted. MEXC staff responded to the 'runaway' doubts about ZKasino, saying, 'We are just one of the investors; the actions of the project team have nothing to do with us. As investors, we are also victims.'
Perhaps due to pressure from multiple parties, ZKasino finally issued a brief response: there are currently many FUD rumors. The ZKasino network will continue to go online, which was previously delayed due to listing on exchanges.
However, users are not satisfied with this simple response. 'When will the refund be made?', 'Is it a soft rug?', 'Why has the mainnet refund description changed?' have become the main contradictions.
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 deposited into Lido. This ETH was bridged by users into ZKasino for mining, but the ZKasino project team modified the official website description and forcibly converted users' deposited ETH into their platform tokens.
On April 22, Big Brain Holdings, previously disclosed as one of the investment institutions in ZKasino, published a statement denying participation in ZKasino's financing.
So far, users' concerns seem to be gradually being 'validated'. Some users also found that as early as March 16, Kedar, the founder of the Ethereum Layer 2 DEX project ZigZag, had warned that ZKasino seemed to have problems. In Kedar's tweet, he mentioned that most of ZKasino's income was fabricated and that users should be cautious in participating in their ICO activities.
Currently, ZKasino's latest tweet only announced the project's next step: '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 the bridge participants.'
However, there are no congratulations or celebrations in the replies, only users repeatedly asking: 'When will the refund be made?'
Opinions and advice from crypto VCs and KOLs
As a 'star' project in the ZK space, many KOLs participated and recommended the project in its early days. Now that such a negative event has occurred, these KOLs have naturally become the target of blame. In the crypto field, how to avoid pitfalls, and when a project encounters problems, who should be held accountable? Du Jun, co-founder of ABCDE Capital, crypto KOL 0xSatoshis, @0xkillthewolf, and others have expressed their views, summarized by Rhythm BlockBeats as follows:
ABCDE co-founder Du Jun (@DujunX):
Regarding the project team's runaway behavior, seeing everyone pursuing accountability from investment institutions and KOLs, I feel that while it makes sense, it is also somewhat absurd.
In the crypto field, 95% of investment institutions are actually weak groups, flattering project teams to gain quotas, flattering platforms to list tokens, flattering LPs to get money, definitely submissive.
Good projects have nothing to do with these institutions in the previous rounds, let alone needing to do due diligence on the project team. Being able to send money to the address is already a blessing. 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 have not been paid to promote, it is very difficult to hold them accountable legally; it can only be a moral condemnation. Looking around, only the top exchanges are at the top of the food chain; other roles are just along for the ride.
When the project team runs away, everyone seeks rights protection from investment institutions and KOLs; institutions and KOLs have also invested real money, so who should they seek rights protection from? In the jungle society of crypto, we must bear the consequences of our investment results, and only by constantly learning can we earn more and live longer.
I strongly condemn the project team that ran away and the KOLs who promoted these runaway projects, hoping that unscrupulous projects will face legal sanctions and return the tokens as soon as possible; may everyone's wallets be safe.
Crypto artist Niq (@niqislucky) replied:
Admit it: the vast majority of staking projects are just like sending money to a 'multi-signature address'. Unless the team is well-known, otherwise VC brand endorsements are almost the only trust foundation for retail investors. KOLs? Responsible for spreading the news, even taking the blame.
Comparisons between VCs only highlight the weaknesses. If the gods are gathering, being unable to join means being mediocre. No matter how mediocre, retail investors still face complete information/funding pressure. Not on the same level, who should I empathize with? Retail investors only feel like they are seeing the crocodile's tears...
Crypto KOL 0xSatoshis (@0xSatoshis):
In light of ZKasino's soft rug status, I have reviewed all staking projects today, excluding ATOM+OSMO+TIA+DYM staking.
Currently participating staking projects include:
1) swell+eigenlayer+renzo+puffer (total of 20E in)
2) blast initially invested 25E, now only retains 6E, severe inflation of points
3) lista over 5000 U
4) merlin just staked Runestone
5) bouncebit less than 10,000 U
Next, I will periodically withdraw capital or reduce positions to a reasonable level (the so-called reasonable is to have zero, which can still be accepted). I feel that the risk of nested staking is quite high now. One dollar staked in projects A, B, C, D, E has become five dollars, but the market still only has one dollar. If something goes wrong in the middle, or if there is a hacker attack, the risk is continuous. It’s better to take advantage of the current liquidity to exit part of it.
Additionally, I want to emphasize again: do not believe KOLs' recommendations, including this small retail investor. Just seriously study the content they share. As for whether to invest in the end, it must be decided by ourselves; investing is our own business. KOLs provide us with content and information, assisting our decision-making.
For beginners, it's still advisable to participate less in staking projects, capital is the priority, and experienced users should control their positions and aim for low-cost bursts.
Brothers, you can earn less, but you can't lose everything. Staking requires position control, and I do not recommend using off-exchange leverage to stake; in web3, nothing is impossible. Do not always think that there will definitely be no problems; many people, including me, thought the same about FTX. When an avalanche occurs, no snowflake is innocent, so prepare your own risk control in advance and take responsibility for your wealth.
Finally: all the projects I participated in in this article are merely my own reflection and do not constitute investment advice, and I am currently reducing my positions. Everyone please judge for themselves, DYOR!
Crypto KOL killthewolf.eth (@0xkillthewolf):
The ZKasino incident is now a hot topic. Although I neither invested nor participated in the staking, a total of four people have asked me whether to invest in this KOL round. Here I will write down my thoughts and insights, hoping to help everyone filter projects in the future.
The KOL round valuation is $9 million, with 15% unlocked at TGE. This condition seems like a no-brainer because the institutional valuation is $350 million, and I am 40 times cheaper than the institutions. As for TGE unlocking only 15%, in fact, I only need $60 million of FDV to break even at the opening, and the institutions have long provided a valuation of $350 million.
The main two reasons I ultimately did not participate:
First, why is the valuation 350 million? Recently, Ethena, which went on Binance, was valued at 300 million, Puffer Finance at 200 million, why can ZKasino, a betting 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 assumes there is some exaggeration in this number, I still checked the addresses of the top 20 users on the platform, and they are all suspected small accounts of the project team trying to inflate the numbers.
Third, the character of the founders 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
So from my perspective, the valuation is fake, the revenue is fake, the character is bad, and there is no conscience, so in the end, I did not participate, and I was fortunate to avoid a huge pit.
