The Zkasino Exit Scam: A Cautionary Tale in DeFi

The Zkasino exit scam raised $30 million, sparking investigations and cautionary tales for DeFi investors. Understand the risks and how to protect your investments.

Key Takeaways

Zkasino raised over $30 million as an onchain gambling platform but ultimately failed to deliver, leading to significant losses.
Researcher ZachXBT uncovered connections between WhiteRock Finance and Zkasino, revealing potential repeat patterns of fraud.
Despite rebranding, the infrastructure used by Zkasino has reappeared in WhiteRock, raising red flags about the potential for another scam.
This case highlights the importance of diligent investigation and verifying claims before investing in blockchain projects.

The Zkasino Exit Scam: A Cautionary Tale in DeFi

In the world of decentralized finance (DeFi), fraud can often overshadow innovation. One of the most significant cases recently was the Zkasino exit scam, which leveraged the allure of onchain gambling. This project successfully attracted over $30 million from investors during its presale, only to vanish with the funds, igniting an international investigation.

What transpired was more than just a simple rug pull; it unfolded as a complex cross-chain money laundering scheme. The perpetrators not only absconded with investor funds but also manipulated the blockchain landscape to obscure their tracks. Their alleged next move involved a rebranding effort as WhiteRock Finance, continuing the thread of deceit.

What was Zkasino’s $30M Fundraise and Where Did It Fail?

Zkasino burst onto the DeFi scene armed with bold promises, offering a decentralized gambling platform that captured the interest of many investors. The launch featured a “Bridge-to-Earn” campaign, encouraging users to lock in their Ether in exchange for rewards. However, this enticing offer was short-lived.

In April 2024, Dutch authorities arrested Elham Nourzai, known online as Derivatives_Ape, on multiple fraud-related charges. Simultaneously, they seized luxury assets and millions in cryptocurrency. Instead of launching its much-anticipated platform, Zkasino’s team allegedly converted investors’ bridged Ether into its token, ZKAS, without permission, and users found themselves powerless to withdraw their investments.

Onchain evidence later indicated that instead of creating a thriving DeFi gambling outlet, Zkasino’s leadership seemingly turned the project into a personal profit machine.

Understanding Chainhopping: How Zkasino’s Funds Were Laundered

Following Nourzai's arrest, investigators identified a method known as chainhopping, characterized by transferring assets across various blockchains to muddy the trail of stolen funds. This technique involved sending assets through ZKsync, Starknet, EVM-compatible chains, and Solana, complicating tracing efforts.

The utilization of chainhopping not only disguised the origins of the funds but also allowed the scammer to convert assets into different formats with varying degrees of privacy. For instance, some funds were swapped for Monero, a notoriously difficult-to-trace privacy coin. Others were funneled into speculative transactions on platforms like Hyperliquid, promoting a cycle of laundering that seemed meticulously orchestrated.

OTC Brokers: Key Players in the Money Laundering Operations

Over-the-Counter (OTC) brokers significantly facilitated the laundering activities, as they operate with minimal regulatory oversight compared to centralized exchanges. This lack of stringent KYC (Know Your Customer) and anti-money laundering protocols allowed the Zkasino team to execute transactions without raising red flags.

The benefits of using OTC brokers included:

Facilitating large transactions that avoided exchange limits.
Enabling off-chain deals that minimized transaction traceability.
Leveraging brokers in regions with weaker rules to facilitate movements.

By breaking down the stolen funds into smaller packages and transferring them through several OTC channels, the scammers effectively obscured their financial tracks, using tactics like converting crypto into privacy coins or stablecoins for further laundering.

WhiteRock Finance: Suspicion Falls on a New Project

Just as interest in Zkasino waned, another DeFi venture appeared: WhiteRock Finance. This new project touted innovative offerings and partnerships within the crypto community. However, its anonymous team and unverifiable history immediately raised concerns, especially given the surge of suspect activity.

Red flags intensified when ZachXBT pointed out links between WhiteRock and Zkasino's network, suggesting that WhiteRock could merely be a rebranded version of the previous scam. An analysis revealed that transactions from Zkasino-linked wallets had surfaced within WhiteRock's operations. Moreover, there were reports that some influencers had been paid from wallets connected to both projects, suggesting an intertwining of the two scams.

Who are the Figures Behind Zkasino?

Although Zkasino was built around anonymity, some real identities have surfaced:

Elham Nourzai (Derivatives_Ape): Key figure arrested in April 2024.
Ildar Ilham (XBT_Prometheus): Allegedly linked to both Zkasino and WhiteRock. Evidence tied an email used by WhiteRock to him.
Lior Ben Zakan (Sigman0x): Another suspected co-conspirator, said to be residing in the Middle East during the investigation.

Experts have warned that the risk of a repeat scam with WhiteRock remains significant given these connections and the team's questionable history with additional projects.

How to Identify and Avoid DeFi Scams

In light of complex scams like Zkasino, investors can take proactive measures to safeguard their funds:

Confirm Team Identities: Be cautious of projects with anonymous founders and unverifiable team histories.
Seek Transparency: Look for clear documentation and a transparent development process.
Review Audit Status: Invest in only those projects that have undergone reputable third-party audits.
Utilize Blockchain Explorers: Tools like Etherscan can help you trace wallet movements and token transactions.
Evaluate Tokenomics: Be wary of projects promising unrealistic yields or lacking clarity in their token distribution plans.
Check for Genuine Partnerships: Verify collaborations through public confirmations from both parties.
Examine Community Activity: Engage in social media groups to gauge community discussions and concerns.
Be Cautious of Influencer Promotions: Watch for transparent disclosures and avoid exceptionally promotional content.
Monitor Developer Contributions: Investigate ongoing project developments through platforms like GitHub.
Always Conduct Your Own Research (DYOR): Prioritize independent investigation over decisions based solely on social media hype or fear of missing out.

The Zkasino case serves as a critical reminder for all investors: due diligence and skepticism are essential in navigating the ever-evolving landscape of cryptocurrency.

Title: The Zkasino Exit Scam: Lessons for Investors in DeFi