ZKasino Accused of Soft Rug Pull: Over 10,000 ETH Forced as "Donations"

Shortly after completing a high-valuation financing round, Web3 entertainment platform ZKasino is accused of conducting a “rug pull” by unilaterally modifying information such as “returning ETH,” forcing coin swaps, and transferring over 10,000 ETH staked assets to an interest-bearing platform. In response, the involved investment parties have distanced themselves from the issue post-facto, while ZKasino's official statement dismisses the community's rights protection incident as FUD rumors and does not address the refund issue.

Forced “Donations” and Coin Swaps of Staked Assets, Official Response Still Pending

On the evening of April 20th, many community users reported that ZKasino had removed the statement “Ethereum will be returned and can be bridged back” from its official website's Bridge funds interface, preventing users from making withdrawals. At the same time, the project's whitepaper not only secretly changed the user-staked assets to a donation mode but also forcibly initiated an “ID0,” converting all the ETH staked by users into its own platform token, $ZKAS.

According to on-chain analyst @EmberCN, ZKasino transferred over 10,515 ETH (worth approximately $33 million) from more than 10,000 users bridged into ZKasino to a multi-signature address on April 21st, and then deposited it into Lido.

ZKasino's actions have sparked anger within the community, with many rallying for rights protection. The Chinese rights protection group alone has already exceeded 2,000 members. Additionally, KOL @0xTim_Hu, who was previously responsible for the domestic KOL round, claimed on April 21st to have filed a case in Dubai but was questioned by the community due to the lack of a receipt.

Subsequently, ZKasino's official response that evening did not directly address the changes to the whitepaper. Instead, they stated that there are currently many FUD rumors and that the ZKasino network will still go live, only delayed due to exchange listings. Despite frequently facing external disruptions and FUD, they remain focused on their mission. They see change as an opportunity for growth, and moving forward, ZKasino will continue to build, upgrade, and promote updates to the ZKasino Chain. They plan to integrate EIP-3074 upon the launch of Kasino Chain to completely transform the platform's gaming experience, eliminating the need for users to manage their $ZKAS balances for gas fees and simplifying the process of interacting with dApps. ZKasino is excited about the future and looks forward to sharing its journey with users.

Allegations of Fraudulent Activities Including Data Falsification

In fact, much of ZKasino's high funding participation can be attributed to the popularity of the zkSync ecosystem DEX, ZigZag, as well as institutional financing endorsements.

ZigZag is the first native DEX of zkSync, and according to crypto KOL @0xAA, the project once secured $15 million in equity and $60 million in bond financing. Furthermore, @0xTim_Hu disclosed in a tweet in February this year that ZigZag had received investments from numerous celebrity capital. However, in June 2022, ZigZag revealed losses of $20 million due to the UST unpegging incident and admitted to generating no revenue in nearly a year, thus lacking funds. Subsequently, ZigZag initiated the IDO and airdrop of its token $ZZ, but the token price has been on a continuous decline. According to CoinGecko data, as of April 24th, the $ZZ token price plummeted to $0.03, a decrease of over 99% from the IDO price of $3. Moreover, founder Kedar announced plans last July to raise $500,000 for a new project valued at $10 million and claimed to airdrop some tokens to $ZZ holders, but this initiative fell through.

ZKasino was launched in January 2023, with some team members coming from ZigZag, including founder Derivatives Monke. However, in March this year, after ZKasino initiated its staking mining activities, ZigZag suddenly “started a fight” with ZKasino.

Kedar pointed out that most of ZKasino's revenue is fake (ZKasino claimed to have revenue exceeding $9 million in its first year of operation) and cautioned users to be wary of their ICO activities. Furthermore, the $40 million ecosystem fund announced by ZKasino is not genuine and may never be paid in any actual currency.

Additionally, Kedar stated that the incompetence and fraudulent behavior of some team members made it difficult for ZigZag to operate, which is a significant reason for the company's minimal progress since its early launch. Of the $15 million previously raised by ZigZag, ZKasino founder Derivatives Monke was the fundraiser and one of the 3/5 signers of the multi-signature, and these funds went to an address controlled by Derivatives Monke. However, ZigZag has never controlled this money, so there might be more funds stolen or transferred to ZKasino than what is known. Although he demanded a return of $1 million in investment from ZKasino, he did not receive compensation, so $ZZ token holders should now try to get compensation on their own, and Monke, as a ZigZag team member, should also bear responsibility for the investor's loss. While he currently lacks substantial evidence to suggest that Monke was involved in any theft, it is true that Monke's incompetence resulted in significant losses for ZigZag.

Furthermore, Kedar emphasized that several people recently accused the ZKasino team of owing money or engaging in fraudulent activities in some way, with several former employees and contractors stating they have not received their wages. He also contacted one of ZKasino's investors, informing them that the project's revenue is fabricated. The latter responded that they had not actually participated in the financing, suggesting that ZKasino's financing and valuation are likely also false. Monke has a history of fabricating Telegram and social media chat records and may again refute these claims with false information. Investors and other project founders are welcome to directly call him for verification.

Regarding Monke's dishonest behavior, blockchain detective ZachXBT pointed out in December last year during the zkSync DeFi head Sebastien's embezzlement of zkSync tokens controversy, providing relevant evidence. He stated, “I'm not sure why anyone would believe Derivatives Monke and his team's words since they have been proven to be dishonest, including evading payment to the anonymous account PancakesBrah responsible for growth and business development at Friend.tech, a fake ”$200,000 giveaway“ activity, evading payment to @CL207, a partner at eGirl Capital, using a disgusting murder video for casino promotion (later apologized and blamed an intern) and not compensating victims after a team member was phished.” However, Derivatives Monke denied all allegations made by ZachXBT.

It is worth mentioning that ZigZag also announced in April this year that it would shut down due to U.S. regulatory pressure, even though just over a month ago, Kedar stated that he would do his best to revive the ZigZag project. Instead, ZigZag's team members forked the code in less than a week, allowing the previously closed zkSync Lite exchange to resume operations, which made the community skeptical of ZigZag's shutdown.

Doubts Surround High Valuation Financing Background, Investment Institutions Accused of “Inaction”

Amid negative news about falsified revenue and misappropriation of funds, ZKasino suddenly announced completion of Series A funding at a valuation of $350 million, without disclosing the specific amount, only revealing participation from MEXC, Big Brain Holdings, Trading_axe, Pentoshi, and Sisyphus. However, Big Brain Holdings stated in a post that they had invested in the ZigZag project in 2022, resulting in financial losses, but they have never invested in ZKasino and will not accept its token distribution. Although the exchange MEXC did not deny the investment, in an interview response, they stated that the project's behavior is unrelated to them, and as an investor, they are also victims.

The indifferent attitude of the investors has also angered the community. Some community members stated that many users participated in ZKasino because of the endorsement of these institutions. However, these organizations did not clarify their involvement in the previous financing statement but distanced themselves when the project went awry, also failing to disclose relevant project information to help users recover their assets. Additionally, some KOLs involved in promotion have become targets of community criticism.

This incident also exposed the lack of rigorous due diligence on the background of investment projects. As Dovey Wan, a partner at Primitive Ventures, recently tweeted, ZKasino was eliminated from investment decisions due to apparent ethical issues. In project investment, the psychological analysis of founders, moral evaluation, motivation, and intent checks are as important as other aspects of due diligence.

Currently, many platforms have taken proactive measures against ZKasino's suspected rug pull event. For example, Ape Terminal, the IDO platform where ZKasino raised $2 million, announced the cancellation of ZKasino's IDO, allowing all participants to obtain refunds, and Binance froze the Binance account of ZKasino's founder.

From this perspective, ZKasino's soft rug pull fully exposes the potential financial loss risks in the crypto dark forest. For investors, it is essential to understand that the entrepreneurial background of well-known projects, high TVL and user numbers, and endorsement from investment institutions cannot be standards for identifying the quality of a project. Additionally, based on their authority and influence, the participation of investment institutions/KOLs often plays a significant role in boosting the project's reputation. Therefore, investors should be more cautious and professional in the process of project investment and sharing.