Gambling Platform ZKasino Sends $33M To Lido Instead Of Returning Assets To Investors

DeFi investors are seething after gambling platform ZKasino took control of $33 million belonging to its users and staked the ETH in Lido Finance.

In the month preceding its launch, ZKasino had enabled a token bridge for users to deposit ETH, in a campaign dubbed “bridge-to-earn.” More than 10,000 users had sent 10,515 ETH, or roughly $33 million, to the bridge, which now showcases a “404: This page could not be found” notice.

After going live on April 20, however, users received an unfortunate surprise in a blog post; all their deposits had been swapped without their consent to ZKasino’s native token, ZKAS, in what the team called “a favor to our users.”

Notably, the majority of ZKAS was vested with a 15-month lockup period.

But the saga, to the dismay of investors, doesn’t end there. Blockchain sleuths unveiled that the ZKasino team had sent the funds to a multisig address controlled by them, and later forwarded the ETH to Lido Finance for staking.

The situation has investors calling it a rug pull as more unsettling news surfaces.

Telegram Lockdown

Communication began breaking down last Friday, as ZKCasino’s team announced in the Telegram group the chat would be locked for a few hours due to “no moderator [being] available.”

However, during the early hours of Saturday, a team member wrote that the Telegram group had to be shut down “because people were hiring hitmen.”

“No point even unlocking the chat,” said Julian of ZKasino.

False Claims

Even though ZKasino purported to leverage zkSync and EigenDA, EigenLayer’s Data Availability project, it’s come to light that the project didn’t use any zero-knowledge technology at all.

Pseudonymous developer Cygaar wrote on X on April 21 that the project does not use either of the aforementioned projects but is instead an Arbitrum-based chain.

“It’s an Arbitrum Nitro chain that took 2 minutes to deploy,” he said. “They put ZERO effort into scamming everyone lmao.”

Additionally, ZKasino’s official documents show a smart contract pre-audit conducted by ChatGPT, although they claim Certik followed up for a full audit.

The ZKasino team did not immediately reply to a request for comment from The Defiant.

Known Bad Actors

Prominent blockchain detective ZachXBT was among the first to sound the alarm regarding ZKasino’s founding team.

In December 2023, ZachXBT pointed out that the founders were “proven bad actors,” posting a number of unpaid debts the team members had incurred.

A lengthy Twitter thread by investor Defizard also backs up ZachXBT’s claims, adding screenshots of the founders calling the situation “FUD and noise.”

These include one of the founders threatening investors to withdraw their allegations, writing in the Telegram group, “Act like this, and you don’t get your tokens back.”

Significant Funding

Another surprising turn in the ZKasino saga is the big-name investors backing the project.

On March 19, the company announced a $26 million Series A funding round at a $350 million valuation – led by MEXC, Big Brain VC, Pentoshi, and 0xSisyiphus, among others.

However, the current situation has pushed several of those VCs to distance themselves from the project.

“Big Brain Holdings invested into the ZigZag Exchange project in 2022, which subsequently resulted in financial losses for us,” wrote a social media account associated with Big Brain VCs. “Some of the previous founders of that project are now part of the ZKasino team, which appears to be fraudulent.”

“We have never invested in ZKasino but were offered a pro-rata token distribution that we have not received and will not opt to receive,” they added.

The team has yet to address the outcry from investors who are anxiously awaiting the return of their ETH.