According to CoinDesk, cryptocurrency venture capital firm Polychain accused its former general partner Niraj Pant of reaching a behind-the-scenes deal with portfolio company Eclipse Labs and secretly accepting Eclipse’s “advisor” tokens, violating the fund’s policies.
According to three people familiar with the matter and internal Eclipse documents reviewed by CoinDesk, former Eclipse Labs CEO Neel Somani quietly allocated 5% of the upcoming Eclipse crypto token to Pant in September 2022. The allocation ratio was eventually reduced to 1.33%. The token is valued at approximately $13.3 million. The deal reportedly comes just days after Pant directed Polychain to lead a $6 million pre-seed round of funding for the company.
Somani promised the tokens as a reward for Pant securing funding for Polychain, according to people familiar with the matter. Pant also confirmed that Eclipse Labs allocated these "advisor" tokens to him, but he insisted that the transaction arrangement was completely legal because he did not enter into the deal with Eclipse until after Polychain's investment. However, two people familiar with the matter told CoinDesk that Somani had committed his 5% advisory share of Eclipse tokens to Pant before the pre-seed financing was completed.
Polychain, for its part, said it became aware of Pant’s financial interest in Eclipse after he left the company in 2023. The fund argued Pant should have disclosed the deal in accordance with its policies to protect the company and its investors from conflicts of interest. The deal also was not disclosed to most of Eclipse’s top executives, advisors or large investors, according to CoinDesk’s sources.
Documents reviewed by CoinDesk show that Pant was allocated a higher share of tokens than any Eclipse investor other than Polychain (which also received 5% of Eclipse’s potential tokens), surpassing other advisors, investors and all but the former CEO. of all Eclipse employees.
Pant served as a general partner at Polychain from 2017 to 2023, where he was responsible for directing the firm’s venture capital into promising crypto startups. Pant is currently the co-founder of blockchain artificial intelligence startup Ritual, which is also part of Polychain’s portfolio.
Eclipse Labs is working on developing the Ethereum second-layer network using the Solana Virtual Machine (SVM). After leading Eclipse’s pre-seed round in August 2022, Polychain participated in its $50 million Series A round in March 2024.
Somani resigned as Eclipse CEO in May amid accusations of sexual misconduct. Somani has denied the allegations and declined to comment for this story.
Tokens instead of equity
The incident also sheds light on fundraising norms unique to the cryptocurrency industry, whereby digital tokens are often awarded alongside, or in lieu of, any equity. Blockchain applications, digital assets, and decentralized ledgers are often promoted as more transparent alternatives to traditional finance, but the ownership structures of many leading projects and cryptocurrencies remain opaque.
In the case of Eclipse's funding, token distribution was crucial because few investors received equity in the project. Most investors were simply promised an allocation of Eclipse’s tokens, but its cryptocurrency doesn’t yet exist and Eclipse hasn’t even announced it publicly.
It's not uncommon, with cryptocurrency investors often offering cash in exchange for tokens rather than traditional equity, and companies rarely disclose these arrangements to the public to avoid giving financial regulators a reason or evidence to allow them to act in conjunction with Cryptocurrency-related regulatory battles treat cryptocurrencies as investment securities.
A spokesperson for Eclipse Labs told CoinDesk that the company does not disclose investor holdings to the public. Eclipse employees, investors and advisors have been promised nearly 50% of future Eclipse token supply, according to an internal token allocation table reviewed by CoinDesk.
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