Attorney Shao Shiwei | ZKasino, a Web3 Gambling Platform Valued at USD 350 Million: Did It Abscond with Funds? Can Domestic Investors Seek Legal Remedies?

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According to ZKasino’s official website and official Twitter account, ZKasino is a decentralized gambling-style gaming platform.

On March 16, 2024, ZKasino announced that the ZKasino Bridge would soon go live and that participants in the fund-bridging campaign would receive ZKAS token rewards. Subsequently, ZKasino repeatedly published notices stating that users who deposited funds earlier would receive greater token rewards, and it introduced a referral commission mechanism to encourage users to invite new users to join. On March 19, ZKasino announced that it had completed a Series A financing round at a valuation of USD 350 million. On April 5, ZKasino posted on Twitter that the total amount of funds bridged and deposited had exceeded 10,000 ETH.

On April 20, ZKasino deleted the statement “Ethereum will be returned and can be bridged back across chains” from the “Bridge funds” description on the Bridge interface of its official website. Users reported that withdrawals were unavailable. On the same day, MEXC Exchange announced the cancellation of the listing of ZKasino (ZKAS). In response to questions about ZKasino’s alleged exit scam, MEXC staff stated, “We are merely one of the investors; the actions of the project team are unrelated to us. As investors, we are also victims.” (This is one of the key reasons many people believe that the ZKasino project team has exited.)

On April 21, ZKasino transferred the Ethereum that users had bridged and deposited into ZKasino to a multi-signature address, which was subsequently deposited into Lido.

As of the date of publication, ZKasino has still not disclosed the whereabouts of the funds previously deposited by users or any subsequent arrangements. Meanwhile, the project’s whitepaper not onlyStakingAssets were covertly modified toDonationmodel, and furtherCompulsorily“IDO,” converting all ETH staked by users with real funds entirelyinto the platform’s own tokensZKAS。

Such efforts to seek legal remedies are by no means easy.

Participants in the crypto industry should be familiar with the September 24 Notice. In September 2021, ten ministries and commissions issued the Notice on Further Preventing and Disposing of the Risks of Virtual Currency Trading and Speculation, which stated that “participation in virtual currency investment and trading activities entails legal risks. Any legal person, unincorporated organization, or natural person investing in virtual currencies and related derivatives, where such acts violate public order and good customs, shall render the relevant civil juristic acts void, and any losses arising therefrom shall be borne by the investor,” and that “illegal business operations, financial fraud, and other criminal activities in virtual currency-related business activities shall be severely cracked down upon, including money laundering, gambling, and other criminal activities carried out using virtual currencies, as well as illegal fundraising, pyramid schemes, and other criminal activities under the guise of virtual currencies.”

In light of the principles of personal jurisdiction and territorial jurisdiction under China’s criminal laws, given that virtual currency-related business activities are defined as illegal financial activities in China: (1) If Chinese citizens engage in such businesses, or if the relevant illegal or criminal acts or their consequences occur within China, Chinese judicial authorities have jurisdiction. (2) If an individual suffers losses from investing in virtual currencies, the relevant civil juristic acts are void, and the individual bears the risks.

Therefore, to seek legal remedies, the following issues must be addressed:

(1) The prerequisite for asserting rights is that the platform is suspected of committing a criminal offense.

Because personal investment in virtual currency transactions is not protected by law and such civil juristic acts are void, it follows thatthe precondition for protecting an individual’s property rights and interests is that the matter constitutes a criminal case.Although the conduct of the ZKasino platform has provoked outrage among numerous investors, with Chinese-language rights-protection groups alone now exceeding 2,000 members, whether there is sufficient evidence to establish that the platform’s conduct constitutes fraud or illegal fundraising requires preliminary proof from investors and final characterization by judicial authorities. Moreover, the platform’s current stance remains ambiguous; while some allege it has absconded, this does not appear to be the case. Nevertheless, ZKasino has yet to take any position on refund requests submitted by users.

(2) Cross-border investigations present difficulties.

Even if the ZKasino platform is indeed suspected of criminal conduct, because it is an overseas platform and the specific identities of the project team members—including whether they are PRC nationals—remain unclear. Although there have been prior cases in which a pyramid scheme purporting to involve virtual currency mining investments caused losses amounting to tens of billions of RMB to PRC citizens, and the ultimate controlling person was eventually apprehended with the assistance of international criminal judicial cooperation and subsequently extradited back to China, domestic judicial authorities do not intervene in every overseas project that absconds.

Although China has jurisdiction, it lacks extraterritorial enforcement authority. Cross-border case handling requires comprehensive consideration of complex factors, including the amount of funds involved, social harm, legal consequences, whether China has concluded extradition treaties with the relevant countries, and international police cooperation and communication. This entails intergovernmental dialogue and negotiation between states.

ZKasino is a gaming platform featuring gambling-like mechanics, primarily based on probabilistic outcomes. Under applicable legal provisions,acting as an agent for such gambling websites is deemed complicity in the crime of operating a casino.

2010 Opinions on Several Issues Concerning the Application of Law in Handling Criminal Cases of Online Gambling

II. Determination and Punishment of Joint Crimes in Online Casino Operations

Where a person knowingly provides the following services or assistance to a gambling website, such conduct constitutes joint criminal liability for the offense of operating a casino and shall be punished in accordance with Article 303, Paragraph 2 of the Criminal Law:(1) Placing advertisements for a gambling website... developingmembers... and other services, where the service fees collected amount to RMB 20,000 or more;members and other services, where the service fees collected amount to RMB 20,000 or more;

2020 Opinions on Several Issues Concerning the Handling of Cross-Border Gambling Crime Cases

III. Determination of Joint Crimes in Cross-Border Gambling 2. Serving as an agent for a gambling website or application and recruiting players, members, or downstream affiliates.

Last year, Attorney Shao handled a case in which the client served as an agent for a foreign Web3 online gambling platform. The platform’s game mechanics were similar to those of ZKasino, consisting of simple probability-based games (such as rock-paper-scissors and coin tosses, as illustrated). The client was ultimately convicted of the offense of operating a casino, while the users under the client’s referral chain (gamblers) were subjected to administrative detention and fines.

The ZKasino rights-protection group has amassed more than 2,000 members in just a few days, and related users on Twitter have been continuously posting requests for assistance.

In the enigmatic crypto asset circle, it is commonplace that absconding is easy while seeking legal redress is difficult. For retail investors, it is essential to carefully screen Web3 project investments, make rational judgments, and invest with caution.