ZKasino Refuses Refund, Allegedly Embezzles Customer Funds to Cryptocurrency Profits Exceeding $3 Million

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In April of this year, the decentralized betting platform ZKasino in the ZK ecosystem was caught up in a "rug pull" incident: tampering with the website's activity description, failing to refund the ETH staked by users in the activity, revoking Telegram posting permissions, canceling the Dubai offline meetup, transferring user funds to Lido for staking without authorization, among other actions. Many users suspected that ZKasino had executed a "soft rug pull." On May 28, the ZKasino team responded, stating that they had initiated a 2-step refund bridge process, where bridgers could register and receive their ETH back at a 1:1 ratio. They also mentioned that they would collect registration data in the following days and soon release a new announcement with data for public verification.

However, as of August 14, the decentralized entertainment platform ZKasino, which had previously conducted a rug pull, had still not issued 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, the ZKasino address started diverting the "funds prepared for user refunds" to engage in on-chain leveraged ETH long positions. They deposited 5,270 ETH into Aave as collateral to borrow 11.589 million DAI, then went long on an additional 3,500 ETH.

On November 28, the ZKasino team further borrowed 9.36 million DAI to purchase 2,603 ETH. After depositing users' 10,535 ETH into Aave as collateral, they had borrowed a total of 53.77 million DAI to buy 15,645 ETH for leveraging ETH long positions. The average price of the ETH purchased through leverage was $3,437. With the significant rise in ETH price, the ZKasino team's use of users' ETH as collateral for leveraged long positions is currently showing a paper profit of $3.22 million.

From on-chain data analysis, it is evident that ZKasino is not "unable to repay" but rather blatantly choosing to "profit from user assets." Every action taken by ZKasino is eroding users' trust and assets, completely deviating from the original principles of decentralization and transparency. The ZKasino team is using user funds to profit from high-risk operations while turning a blind eye to the issue of fund repayment, causing a secondary harm to the victims.

ZKasino Incident Timeline

Going back to April 19, several community users noticed that after the ZKasino staking activity ended, ETH refunds were not being processed promptly. Subsequently, through the Wayback Machine archive, it was discovered that on April 18, ZKasino removed the statement "Ethereum will be refunded and can be bridged back" from the Bridge funds page on their official website, sparking panic among users and leading to suspicions of a potential "exit scam." Users who participated in the staking activity flooded ZKasino's official Twitter for inquiries, with Telegram also becoming a platform for seeking justice. However, shortly after, ZKasino team members disabled Telegram posting permissions.

On April 20, the MEXC exchange, which was scheduled to list ZKasino (ZKAS) on that day, announced a delay in the listing and withdrawals, and also temporarily suspended ZKAS deposits. MEXC staff responded to allegations of ZKasino's "exit scam" by stating, "We are just one of the investors, and the actions of the project team are not related to us. As investors, we are also victims."

Perhaps due to various pressures, ZKasino finally issued a brief response: there are currently many FUD rumors. The ZKasino network will still go live, but the mainnet launch has been delayed due to the exchange listing.

However, users were not satisfied with this simple response. Questions like "When will refunds be issued?", "Is it a soft exit scam?", and "Why was the mainnet refund description changed?" have become the main points of contention.

On April 21, according to blockchain analyst Yu Jin's monitoring, 10,515 ETH that users had bridged to ZKasino was transferred to a multi-signature address and then deposited into Lido. These ETH were part of the user's bridged deposits for ZKasino mining. However, the ZKasino team modified the official website to forcibly convert the ETH deposited by users into their platform's token.

On April 22, Big Brain Holdings, which was previously disclosed as one of ZKasino's investment institutions, published a "debunking" post, denying its involvement in ZKasino's financing.

At this point, users' concerns seem to be gradually confirmed. Some users have also noticed that as early as March 16, Kedar, the founder of the Ethereum Layer 2 ecosystem DEX project ZigZag, had warned that ZKasino seemed to have issues. In Kedar's tweet, he mentioned that most of ZKasino's revenue was fake, and users should be cautious about participating in their ICO activities.

Currently, ZKasino's latest tweet only announced the project's next steps: "All ZKasino games will be moved to a new chain - they will also remain on Arbitrum and Polygon. The native DEX and stablecoin will be launched soon. The first batch of ZKAS has been distributed to bridge users."

However, there were no congratulations or celebrations in the tweet replies, only users repeatedly asking, "When is the refund?"

Crypto VC and KOL Perspectives and Recommendations

As a "star" project on ZK, during its early launch, many Key Opinion Leaders (KOLs) participated in and recommended the project. Now, faced with such a negative event, these KOLs have naturally become the target of criticism. In the Crypto field, how can one avoid pitfalls, and when a project encounters issues, who should be held accountable? ABCDE Capital Co-founder Dujun, Crypto KOL 0xSatoshis, @0xkillthewolf, among others, have expressed their views. BlockBeats has compiled their opinions:

ABCDE Co-founder Dujun (@DujunX):

Regarding the project team exit scam, seeing everyone blaming the investment institutions and KOLs, I feel that while it makes sense, it's also a bit absurd.

In the Crypto field, 95% of investment institutions are, in fact, a vulnerable group, licking the project team to get an allocation, licking exchanges to get listed, licking LPs for funds, acting as complete lapdogs.

In good projects, these institutions had nothing to do in the early rounds. Not to mention conducting due diligence on the project team, they are grateful just to be able to send funds to an address. KOLs may seem dominant, and some projects even have a KOL round, but they are at the bottom of the food chain, with no real say. If KOLs did not take money to pump, it's very difficult to hold them legally accountable; they can only face moral condemnation. Looking ahead, only the top exchanges are at the very top of the food chain, all other roles are just extras.

When the project team exit scams, everyone looks to the investment institutions and KOLs for justice. However, these institutions and KOLs have also genuinely invested their money. So, who should they turn to for justice? In this jungle society of Crypto, we must take responsibility for our investment outcomes, continue to learn, in order to earn more and survive longer.

Lastly, a strong condemnation for exit scam project teams and the KOLs who promoted these exit scam projects. We look forward to unethical projects facing legal repercussions and returning funds promptly, so everyone's wallets stay safe.

Crypto art creator Niq (@niqislucky) responded:

Let's admit it: the vast majority of staking projects are just like transferring money to a "multi-sig address." Unless the team is well-known, VC brand endorsements are practically the entire basis of retail investors' trust. KOLs? They are responsible for dissemination, even carrying the blame.

Weakness among VCs only exists in comparison between them. It's a game for the elite, and if you can't enter, you're just a newbie. Even if you're a newbie, you're still completely overwhelmed in terms of information/money compared to retail investors. On different levels, who can empathize with whom? To retail investors, it just feels like crocodile tears...

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Crypto KOL 0xSatoshis (@0xSatoshis):

Considering the exit scam status of Zkasino, today I have reviewed all the staking projects I was involved in, except for ATOM+OSMO+TIA+DYM staking

Currently staking in the following projects:

1) swell+eigenlayer+renzo+puffer (total of 20E inside)

2) blast initially invested 25E, now only 6E remaining, severe token inflation

3) lista over 5000 U

4) merlin staking just Runestone

5) bouncebit less than 10,000 U

I will periodically withdraw the principal or reduce the position to a reasonable level (meaning to zero, which is acceptable), as I feel the current yield farming staking risks are too high. Staking one dollar in projects A\B\C\D\E results in a TVL of 5 dollars, but the market still only has one dollar. In case of a rug pull or a hack, the risk is continuous. It's better to exit partially while there is still liquidity.

Furthermore, I want to emphasize once again, do not trust KOL investment advice, including mine as a small retail investor. Simply study and learn from the content shared by others. Whether to ultimately invest or not must be your own decision. Investment is our own responsibility; KOLs provide us with content and information to assist our decision-making.

For beginners, it is recommended to participate less in staking projects. Protect your principal first. Experienced investors should control their positions, and at a low cost, speculate on rug pulls.

Brothers, you can earn less, but you can't afford to lose everything. Control your staking position; it is not advisable to use off-chain leverage to borrow money for staking. In web3, anything is possible; don't always assume that nothing will go wrong. Many, including myself, thought the same about FTX in the past, but when the avalanche came, no snowflake was innocent. Therefore, be prepared with your risk management in advance and be responsible for your own wealth.

Finally: All the projects I mentioned in this post are purely my own review, not investment advice, and I am currently reducing my positions. Please make your own judgment and DYOR!

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Crypto KOL Wolf Slayer killthewolf.eth (@0xkillthewolf):

The ZKasino incident is currently making waves. Although I didn't invest in or participate in staking for this project, a total of 4 people approached me before and after asking if I wanted to join this KOL round. Here, I will share my thoughts and experiences, hoping to help everyone in the future with project screening.

The KOL round was valued at $9 million, with 15% of TGE unlocked. At first glance, this condition seems like a no-brainer move because the institutional valuation is $350 million, making me 40 times cheaper than the institution. As for the TGE unlocking only 15%, in fact, with an initial market cap of $60 million, I could break even, and the institution had already provided a valuation of $350 million.

The two main reasons why I ultimately didn't participate were:

First, why is it valued at $350 million? Recently, Ethena, which listed on Binance, was valued at $300 million, Puffer Finance at $200 million, and ZKasino, a gambling platform, how could it be valued at $350 million? Because of this valuation number, I was skeptical of this round of funding.

Second, the project team claimed $8 million in revenue. Although everyone generally assumed this figure was somewhat inflated, I still checked the addresses of the top 20 platform gambling users, all of which seemed to be small addresses of the project team used for volume padding.

Third, the founder's character is very problematic. Previously, their official account used a bloody murder video as a joke for marketing, which caused quite a stir at the time. @zachxbt also exposed various things this individual has done: https://x.com/zachxbt/status/1731025316204745113

So from my perspective on this project, the valuation is false, the revenue is false, the character is bad, and there is no integrity. Therefore, in the end, I did not participate, fortunately avoiding a major pitfall.

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