Author: Sam Kessler, Coindesk; Translated by: 0xjs@Golden Finance
Key points:
1. Polychain said its former general partner Niraj Pant reached a secret deal with portfolio company Eclipse Labs in violation of the fund's policies. 2. CoinDesk investigation shows that Neel Somani, former CEO of Eclipse Labs, promised Pant $13.3 million worth of Eclipse tokens. 3. According to sources close to Eclipse, Pant promised to provide these tokens as a means of incentivizing Pant to invest in Eclipse with Polychain funds. 4. Polychain said Pant did not disclose the deal to Polychain. Polychain later invested in Pant's AI startup Ritual. 5. Pant confirmed that Eclipse Labs allocated him "advisory" tokens, but said he did not reach an agreement with the company until after Polychain invested. 6. This situation gives us a glimpse into the typical dark transactions in the financing scene of the crypto industry, where VCs have close relationships with projects and exchange tokens for investments instead of traditional equity.
Crypto venture capital giant Polychain has accused its former employee Niraj Pant of violating the fund’s policies by engaging in backroom dealings with portfolio company Eclipse Labs.
Former Eclipse Labs CEO Neel Somani quietly allocated Pant 5% of the upcoming Eclipse crypto token in September 2022 — just days after Pant directed Polychain to lead a $6 million pre-seed funding round for the company, according to three people familiar with the matter and internal Eclipse documents reviewed by CoinDesk.
Ultimately, that share was reduced to 1.33%, worth $13.3 million at the token’s most recent fully diluted valuation in a private investment round. (Sources close to Eclipse Labs said the company’s most recent funding round valued the token at $1 billion on a fully diluted basis.)
Founded by Olaf Carlson-Wee, the first employee of cryptocurrency exchange Coinbase, Polychain is one of the largest and most well-known cryptocurrency venture capital firms, with more than $11 billion in assets under management. Pant served as a general partner at the firm from 2017 to 2023, responsible for directing the firm’s venture capital funds into promising cryptocurrency startups.
Pant has since become a prominent figure in the crypto industry and currently serves as co-founder of blockchain AI startup Ritual, another Polychain portfolio company.
Eclipse Labs has built a blockchain that combines the popular Solana and Ethereum network technologies. After leading Eclipse’s pre-seed funding round in August 2022, Polychain participated in Eclipse’s $50 million Series A funding round in March 2024.
Pant led the pre-seed deal, and a CoinDesk investigation shows that around the same time, he received as much Eclipse crypto tokens as Polychain itself. The deal was not disclosed to most Eclipse executives, advisors or large investors, according to CoinDesk’s sources.
Pant insisted the arrangement was perfectly legal because it wasn’t finalized until September 2022 — just a month after Polychain invested in Eclipse. He shared legal documents with CoinDesk showing that his “advisory” allocation of Eclipse tokens was revised to 1.33% in 2024, but he declined to comment on his original stake or why it was revised.
Polychain told CoinDesk it didn’t learn Pant owned Eclipse tokens until after he left the firm in 2023. The fund said he should have disclosed the transaction under Polychain policies, which are designed to protect the firm and its investors from conflicts of interest.
“Polychain became aware of the financial relationship between Eclipse and Niraj Pant only after he left the company,” a Polychain spokesperson said in an email to CoinDesk. “Polychain has strict policies and procedures for employees who serve as consultants. After Pant left Polychain, the company became aware that he had violated its policies and launched an investigation into the matter.”
Polychain’s statement to CoinDesk offers a glimpse into the cumbersome processes that surround crypto venture capital firms and the projects they fund. Venture capital firms rarely discuss personnel matters or deal structures publicly, and Polychain did not publicly disclose Pant’s policy violations until CoinDesk reached out for this article.
Blurred timeline
The news is likely to add to the controversy surrounding Somani, who resigned as Eclipse CEO in May amid allegations of sexual misconduct. Somani has denied the allegations and declined to comment for this article.
Eclipse founder Neel Somani resigns as company's "public face" amid sexual misconduct allegations. (Photo by Andrew Gonzalez)
Two sources close to Eclipse who spoke to CoinDesk on the condition of anonymity said Somani committed to providing Pant with a 5% advisory share of Eclipse tokens before the pre-seed deal closed.
Pant’s stake is higher than any other Eclipse investor except Polychain, which also holds 5% of Eclipse tokens, according to documents reviewed by CoinDesk. Pant’s stake exceeds the allocations of other advisors, investors and every Eclipse employee except the former CEO.
Somani told his inner circle that the generous token rewards were intended to incentivize Pant to invest with Polychain’s cash and the coveted backing of the veteran venture capitalist, according to two people familiar with the matter.
Polychain officials said the arrangement was not disclosed to the venture capital firm or its limited partners at the time.
Tokens instead of equity
The event also provides a glimpse into the cryptocurrency industry’s unique fundraising practices, where digital tokens are often granted alongside or in lieu of 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.
Eclipse Labs built a layer 2 blockchain that provides users with a faster and cheaper way to conduct transactions on the Ethereum network. The network’s main appeal is that it borrows elements from the popular Solana blockchain to support key elements of its technical design — a detail that has helped it make a splash in two of the largest blockchain communities.
In the case of Eclipse’s funding round, token distribution was crucial because few investors received equity in the project. Most were simply promised a portion of Eclipse tokens — a cryptocurrency that doesn’t exist yet and that Eclipse hasn’t even publicly announced.
Such arrangements are not uncommon. Cryptocurrency investors often exchange cash for tokens rather than traditional equity, and companies rarely disclose these arrangements to the public to avoid giving financial regulators ammunition in their fight to classify cryptocurrencies as investment securities.
“Eclipse Labs does not disclose investor holding percentages to the public,” an Eclipse Labs spokesperson told CoinDesk.
Eclipse employees, investors and advisors have been promised nearly 50% of the future Eclipse token supply, according to an internal token allocation table reviewed by CoinDesk.
Pant insists his consulting agreement with Eclipse is above board. He shared legal documents with CoinDesk showing he will receive 1.33% of Eclipse tokens.
Excerpt from the revised consulting agreement provided by Niraj Pant
That amount — revised based on a previously undisclosed total from Pant — is less than the 5% Pant was initially promised, according to documents and people familiar with the matter, but still more than every other Eclipse adviser and nearly all of its investors and employees.
The consulting agreement signed by Pant is dated April 29, 2024 (after he left Polychain) and is signed by two parties: Neel Somani on behalf of Eclipse Labs; and Niraj Pant on behalf of “The Psychological Operations Co.”
Excerpt from the revised consulting agreement provided by Niraj Pant and signed by Pant and Neel Somani
Under the agreement, Psychological Operations Co. will receive token grants from Eclipse in exchange for “regular, synchronized teleconference meetings” required by Eclipse. The agreement itself does not mention Polychain or its pre-seed investment in Eclipse.
A version of the agreement Pant provided to CoinDesk indicates it’s an “amendment” to an earlier consulting agreement signed on Sept. 8, 2022, just weeks after Eclipse’s seed round closed and while he was a general partner at Polychain.
Pant declined to reveal the original agreement.
Polychain’s Policy
Regardless of whether Pant’s advisory role was established before the seed round, if his advisory role at Eclipse was while he was still working at Polychain — as his own filings attest — then he may still have been required to disclose this under the company’s ethics policy, which it describes in a lengthy disclosure document filed with the SEC.
“To monitor for any conflicts of interest, Polychain employees must pre-clear certain anticipated transactions in their personal accounts that could indicate possible misconduct and must disclose all personal account positions on an initial and annual basis, as well as all transactions on a quarterly basis,” Polychain wrote in its official policy document filed with the SEC.
This situation is particularly notable because Pant is not only a former Polychain employee, but also the co-founder of Ritual, one of Polychain’s most high-profile portfolio companies.
After leaving Polychain and founding Ritual last year, Pant quickly rose to become a regular on the blockchain industry speaking circuit and is seen as a thought leader at the intersection of crypto and AI. Ritual, which aims to decentralize the execution of AI models, is one of a number of projects combining blockchain and AI that have themselves become venture capital darlings. In November 2023, it raised $25 million from Polychain and other companies.
Polychain declined to comment on whether its relationship with Ritual changed as a result of Pant’s alleged policy violation, or whether it was aware of the violation before investing in Ritual.
Despite the alleged policy violations, Polychain’s investment in Eclipse is likely to pay off. According to a source close to the fund, the value of its investment in Eclipse has increased tenfold since the firm’s first investment in 2022.
Correction: Niraj Pant’s initial token allocation was larger than that of Eclipse’s current CEO, according to people familiar with the matter.
