ZKasino is accused of a soft rug: over 10,000 ETH was forcibly "donated," and the founder was "attacked" by the former employer

Author: Nancy, PANews

Shortly after announcing a high-valuation financing, the Web3 entertainment platform ZKasino has been accused of running away due to a series of questionable actions, including unilaterally modifying information such as "ETH refunds," forcing currency exchanges, and transferring over 10,000 ETH of staked assets to interest-bearing platforms. In response, the involved investors distanced themselves from the situation, while ZKasino's official statement categorized the community's rights protection incident as FUD rumors, without mentioning any refund matters.

Staked assets forcibly "donated" and exchanged, official response still lacking

On the evening of April 20, many community users reported that ZKasino had removed the "Ethereum will be refunded and can be bridged back" from the Bridge funds interface on its official website, preventing users from withdrawing funds. Additionally, the project's white paper document secretly modified users' staked assets to a donation model and forcibly executed "ID0," converting all ETH staked by users into its own platform token $ZKAS.

According to on-chain analyst Yu Jin's monitoring, ZKasino transferred over 10,515 ETH (worth approximately $33 million) from more than 10,000 users who bridged funds into ZKasino to a multi-signature address on April 21, and then deposited it into Lido.

ZKasino's actions have also sparked community outrage, leading many to form teams for rights protection, with over 2,000 members in the Chinese rights protection group alone. Previously, KOL @0xTim_Hu, responsible for domestic KOL rounds, claimed on April 21 that he had 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 white paper content but stated that there are many FUD rumors, and the ZKasino network will still launch, just delayed due to exchange listings. Despite new technologies often facing external interference and FUD, they remain focused on their mission. Changes may sometimes encounter skepticism, but ZKasino views them as opportunities for growth. Moving forward, ZKasino will continue to build, upgrade, and promote updates to the ZKasino Chain, integrating EIP-3074 to fundamentally change the gaming experience on its platform, and users will no longer need to manage their $ZKAS balance for gas fees, simplifying interactions with dApps. ZKasino is excited about the future and looks forward to sharing its journey with users.

Accusations of data falsification and other fraudulent behaviors

In fact, the high level of funding participation in ZKasino is largely attributed to the reputation of the zkSync ecosystem DEX ZigZag and institutional financing endorsements.

Zigzag is the first native DEX of zkSync. According to crypto KOL 0xAA, the project previously secured $15 million in equity and $60 million in bond financing. Additionally, @0xTim_Hu disclosed in a tweet this February that Zigzag had received investments from several star capital firms. However, in June 2022, Zigzag revealed that it suffered a $20 million loss due to the UST de-pegging incident and admitted that it had not generated any revenue in nearly a year of operation, resulting in a lack of funds. Subsequently, Zigzag launched the token $ZZ's ID0 and airdrop, but the token price plummeted. CoinGecko data shows that as of April 22, the price of token $ZZ had dropped to $0.03, a decline of over 99% from the ID0 price of $3. Furthermore, founder Kedar announced last July plans to raise $500,000 for his new project at a valuation of $10 million, claiming that some tokens would be airdropped to $ZZ holders, but this ultimately fell through.

ZKasino is a project launched in January 2023, with some team members coming from ZigZag, including founder Derivatives Monke. However, in March of this year, after ZKasino initiated staking mining activities, ZigZag suddenly "turned against" ZKasino.

Kedar stated that most of ZKasino's revenue is fabricated (ZKasino claims to have generated over $9 million in its first year), urging users to participate cautiously in their IC0 activities. At the same time, Kedar claimed that the announced $40 million ecosystem fund is not real and may never be paid in any actual currency.

Kedar also indicated that the incompetence and fraudulent behavior of some team members have made it difficult for ZigZag to operate, which is a significant reason for the company's minimal progress since its early launch. The $15 million previously raised by ZigZag had Derivatives Monke as a fundraiser and a 3/5 signer of the multi-signature, and these funds entered an address controlled by Derivatives Monke, but ZigZag never controlled this money, so there may be more funds stolen or entering ZKasino than he is aware of. Although he had requested ZKasino to return a $1 million investment, he did not receive compensation, so $ZZ token holders should now try to recover their losses themselves, and Monke, as a member of the ZigZag team, should also be held accountable for the investors' lost funds. While he currently has no strong evidence to indicate Monke's involvement in any theft, it is true that ZigZag lost a lot of money due to Monke's incompetence.

Additionally, Kedar emphasized that several individuals have recently accused the ZKasino team of owing payments or defrauding in some way, and many former employees and contractors have reported not receiving their wages. He also contacted one of ZKasino's investors, informing them of the project's revenue falsification, to which the latter responded that they had not actually participated in the financing, suggesting that ZKasino's financing and valuation are likely also fake. Monke has a history of fabricating Telegram and social media chat records and may again refute this through misinformation, inviting investors and other project founders to call him directly for information verification.

Regarding Monke's dishonest behavior, on-chain detective ZachXBT pointed out as early as last December during the zkSync DeFi head Sebastien's embezzlement of zkSync tokens, providing relevant evidence and stating, "I don't understand why anyone would believe Derivatives Monke and his team's words, as they have been proven to be dishonest, including evading payments to the anonymous account PancakesBrah responsible for growth and business development at Friend.tech, a $200,000 fake 'gift' campaign, evading payments related to a bet with eGirl Capital partner @CL207, and promoting a casino with a disgusting murder video (later apologizing and blaming it on an intern), as well as failing to compensate victims after team members were phished." However, Derivatives Monke has denied all accusations made by ZachXBT.

It is worth mentioning that ZigZag also announced in April this year that it would shut down operations due to regulatory pressure from the U.S., despite Kedar stating just over a month ago that he would do everything possible to revive the ZigZag project. Instead, within a week, ZigZag's team members re-forked the code, allowing the previously closed zkSync Lite exchange to resume operations, which led the community to be skeptical about ZigZag's shutdown.

Doubts about the background of high-valuation financing, investment institutions accused of "inaction"

In light of negative news regarding revenue falsification and misappropriation of funds, ZKasino suddenly announced a Series A financing round at a valuation of $350 million just days later, but did not disclose the specific amount, only revealing participation from MEXC, Big Brain Holdings, Trading_axe, Pentoshi, and Sisyphus. However, Big Brain Holdings stated that it had invested in the ZigZag project in 2022, resulting in financial losses, but had never invested in ZKasino and would not accept any token distribution from it; although the exchange MEXC did not deny the investment, it stated in an interview with Deep Tide TechFlow that the project's actions were unrelated to them, and they, as investors, were also victims.

The investors' "not my business" attitude has also sparked community anger, with some members stating that many users participated in ZKasino due to the endorsement of the investors, but these institutions did not clarify their positions during the previous financing announcement and distanced themselves when the project acted maliciously, failing to disclose relevant project information to help users recover assets. Additionally, some KOLs involved in the promotion have become targets of community criticism.

This incident has also exposed the lack of rigor in background investigations of investment projects. As Primitive Ventures partner Dovey Wan recently tweeted, the investment decision for ZKasino was eliminated due to obvious ethical issues. In project investments, psychological analysis of the founders, ethical assessments, and checks on motives and intentions should be as important as other aspects of due diligence.

Currently, several platforms have taken positive actions regarding the suspected rug pull incident involving ZKasino, such as the ID0 platform Ape Terminal, which completed a $2 million fundraising for ZKasino, announcing the cancellation of ZKasino's ID0 and allowing all participants to receive refunds, and Binance freezing ZKasino founder's Binance account.

From this perspective, ZKasino's soft rug has fully exposed the potential risk of financial loss in the dark forest of cryptocurrency. For investors, it is essential to understand that the entrepreneurial background of well-known projects, high TVL, user numbers, and endorsements from investment institutions do not serve as standards for assessing the quality of a project. Furthermore, due to their influence and power, the participation of investment institutions/KOLs often plays a role in enhancing a project's reputation, so greater caution and professionalism should be exercised during project investment and sharing.