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News/ ZKasino Scandal: Investor Funds Vanish from Crypto Betting Site

ZKasino Scandal: Investor Funds Vanish from Crypto Betting Site

Van Thanh Le

Apr 23 2024

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ZKasino's Pivot Raises 'Rug Pull' Concerns

ZKasino, a blockchain-based gambling platform, found itself embroiled in controversy after pivoting from its initial promise to refund users' funds. 

Having previously raised $33 million through an Ethereum bridge involving over 10,515 ETH under the commitment of returning user funds, ZKasino instead converted the entire sum into its native ZKAS token at a discounted rate of $0.055 per token upon launch on April 20. Only 5% of the tokens were made immediately available, with the remainder vested over 15 months.

The changes were described as a favor to facilitate a smooth transition for users, as the chain does not utilize ETH. Additionally, the wording on the website was altered, removing a statement about the return of ETH.  

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Source: Wayback Machine

This unexpected reversal, coupled with the removal of the refund policy from their website, sparked widespread accusations of an "exit scam" across social media platforms. Public dissatisfaction intensified as the promised terms of investment were abruptly changed without proper notification to stakeholders. On-chain data confirmed the conversion and subsequent transfer of funds to the staking protocol Lido, where it earns an annual return exceeding $1 million at a 3.2% yield.

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Source: Ember/ X

An anonymous crypto developer, "cygaar," stated that ZKasino's blockchain was deployed as an Arbitrum Nitro chain in 2 minutes, lacking zero knowledge technology or EigenDA despite its initial claims.  

There were earlier warnings by crypto security enthusiasts, such as ZachXBT, who labeled members of the ZKasino team as 'proven bad actors', suggesting a history of questionable practices by those involved with the project. These red flags, coupled with the recent events, fueled allegations of a premeditated "rug pull" scam.

The controversy didn't stop there. Early backers and partners distanced themselves from ZKasino amidst the backlash. Venture capital firm Big Brain Holdings refuted ZKasino's claims of a $350 million Series A valuation involving their firm and crypto exchange MEXC, stating they had received no tokens and had no plans to opt-in.

On April 23, BlackDragon disclosed that they aimed to invest in ZKasino. However, the investment didn't proceed due to the ZKasino team's reluctance to reveal themselves. Despite BlackDragon's warnings, other funds and communities still invested heavily in the project.  

As criticism mounted, ZKasino's communication dwindled. They locked their Telegram group and avoided direct engagement with complaints, fueling further speculation and dissatisfaction among users. 

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The chat has still been locked so far.

Additional allegations surfaced, including failing to pay contractors and misusing development funds, as claimed by decentralized exchange ZigZag.

Despite the serious nature of these accusations, ZKasino has remained largely silent, offering minimal updates on ongoing platform developments while neglecting to address the community's concerns about the legitimacy and integrity of their operations.

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The latest tweets on Zkasino's X, without any clarification about the scandal.

ZKasino Saga: Legal Battles, Public Fury, and Betrayed Trust

Amidst the swirling chaos surrounding ZKasino, a Telegram group aptly named "ZKasino Legal Task Force" emerged, fueled by investors determined to pursue legal recourse. This collective action stemmed from a suspicious incident where the project's co-founders allegedly converted approximately $33 million in Ether (ETH) into ZKasino's native token before vanishing without a trace, leaving investors reeling from the apparent betrayal.

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Investors are calling for action in the Telegram group.

The investor community's outrage was palpable, with discussions within the Telegram group quickly spiraling into extreme suggestions, including calls for physical violence against the ZKasino co-founders. This escalation underscored the depth of anger and frustration felt by those who had entrusted their investments to the project, only to be met with deception and potential financial ruin.

Adding to the uncertainty and distrust, investors who had purchased ZKAS tokens during the pre-sale found themselves in limbo, still awaiting distribution of their promised assets. This lingering issue compounded the sense of betrayal, further eroding confidence in the project and fueling suspicions of wrongdoing.

Renowned Ethereum co-founder Vitalik Buterin weighed in on the controversy, vehemently condemning ZKasino for its misleading association with Zero-Knowledge (ZK) technology. Buterin emphasized that the project's operations misused the ZK branding, effectively misleading investors and tarnishing the reputation of a promising technological advancement.

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Vitalik's post.

Conclusion

ZKasino's launch has been marred by controversy. Accusations of a "rug pull" scam emerged after the platform converted user funds to its own token, raising concerns about the project's legitimacy and leading to severed partnerships. ZKasino's silence on the matter has only intensified criticism, leaving the future of the platform uncertain.

FAQs

1. What is ZKasino accused of?

ZKasino is accused of an "exit scam" after converting user funds raised for ETH refunds into its own token ($ZKAS) without informing users and locking the funds for 15 months. This, alongside a lack of communication and accusations of prior bad practices by the team, has fueled the controversy.

2. Why did the price of ZKasino's token raise concerns?

The conversion happened at a discounted rate ($0.055), raising questions about the token's actual value. Additionally, only 5% was immediately accessible, limiting users' ability to recoup their investment.

3. How did ZKasino respond to the accusations?

ZKasino has remained mostly silent, offering minimal updates and failing to address user concerns directly. This lack of communication has intensified speculation and dissatisfaction.

4. What evidence is there to support the accusations?

On-chain data confirms the fund conversion, and critics like ZachXBT pointed out a history of questionable practices by the ZKasino team. Additionally, early backers like Big Brain Holdings distanced themselves from the project.

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