Polychain alleges that Niraj Pant, a former general partner, engaged in a clandestine transaction with investment portfolio company Eclipse Labs, which violated the fund's policy.
Author: Sam Kessler
Translation: DeThings
Editor's Note: Niraj Pant, a former general partner at a top cryptocurrency venture capital firm, reached a secret agreement with investment portfolio company Eclipse Labs, but the timeline is unclear, sparking controversy. This incident has raised concerns about potential conflicts of interest and ethical standards in the venture capital industry, highlighting the complex relationship between investors and startup companies.
Polychain stated that its former general partner Niraj Pant reached a secret agreement with investment portfolio company Eclipse Labs, which violated the fund's policy.
A CoinDesk investigation revealed that Neel Somani, former CEO of Eclipse Labs, promised Pant Eclipse tokens worth $13.3 million.
According to sources at Eclipse, Somani promised these tokens as an incentive to secure funding from Polychain for Pant.
Polychain stated that Pant did not disclose this transaction to the fund. Later, it invested in Pant's AI startup company, Ritual.
Pant confirmed that Eclipse Labs allocated "advisor" tokens to him, but stated that the agreement with the company was reached only after Polychain's investment.
This situation provides a glimpse into the typical dark transactions in the cryptocurrency industry's financing scene, where venture capital firms invest in projects and tokens in exchange for tokens instead of traditional equity.
Cryptocurrency venture capital giant Polychain has accused former employee Niraj Pant of engaging in an undisclosed transaction with investment portfolio company Eclipse Labs that violated the fund's policy.
According to three sources familiar with the matter and internal documents reviewed by CoinDesk, Neel Somani, former CEO of Eclipse Labs, quietly allocated 5% of the upcoming Eclipse cryptocurrency tokens to Pant in September 2022—just days before Pant directed Polychain to lead a $6 million seed funding round for the company.
The allocation was ultimately reduced to 1.33%, valued at $13.3 million, based on the token's fully diluted valuation in a recent private investment round. (According to a source close to Eclipse Labs, the company's latest funding round valued the token at a fully diluted valuation (FDV) of $1 billion.)
Polychain, founded by Olaf Carlson-Wee, the first employee of cryptocurrency exchange Coinbase, is one of the largest and most well-known cryptocurrency venture capital firms, managing over $11 billion in assets. Pant served as a general partner at the company from 2017 to 2023, responsible for guiding the firm's venture investments into promising cryptocurrency startups.
Subsequently, Pant became a prominent figure in the cryptocurrency industry and currently serves as co-founder of Ritual, a blockchain AI startup that is another investment in Polychain's portfolio.
Eclipse Labs has built a blockchain that blends technologies from the popular Solana and Ethereum networks. Following Polychain's lead in a seed funding round in August 2022, the firm participated in a $50 million Series A funding round in March 2024.
Pant led the seed round, and a CoinDesk investigation revealed that around the same time, the number of Eclipse cryptocurrency tokens he allocated was as much as Polychain's own. According to CoinDesk sources, this transaction was not disclosed to most of Eclipse's executives, advisors, or large investors.
Pant insists that the arrangement was fully compliant with Jewish law, as it was not finalized until September 2022, a month after Polychain had already invested in Eclipse. He shared legal documents with CoinDesk showing that his allocation of "advisor" tokens from Eclipse was modified to 1.33% in 2024, but declined to comment on the initial size of his stake or why it was changed.
Polychain told CoinDesk that it only became aware of Pant's financial stake in Eclipse after he left the company in 2023. The fund stated that he should have disclosed the transaction in accordance with its policies, which are designed to protect the company and its investors from the impact of conflicts of interest.
"Polychain only became aware of the financial relationship between Eclipse and Niraj Pant after Mr. Pant left the company," a Polychain spokesperson said in an email to CoinDesk. "Polychain has robust policies and procedures for employees serving in advisory roles. After Mr. Pant left Polychain, the company became aware that he had violated its policies and investigated the matter."
Polychain's statement to CoinDesk provides rare insight into the sausage-making process of the cozy world of cryptocurrency venture capital firms and their funded projects. Venture capital firms rarely publicly discuss personnel matters or transaction structures, and Polychain did not publicly disclose Pant's policy violation until CoinDesk reported on the matter.
Blurry Timeline
This revelation may deepen the controversial narrative surrounding Somani, who resigned as CEO of Eclipse in May amid allegations of sexual misconduct. Somani has denied the allegations and declined to comment on the matter.
Two sources familiar with Eclipse, who requested anonymity, claimed that Somani had promised Pant his 5% advisory stake in Eclipse tokens before the seed round transaction was completed.
According to documents reviewed by CoinDesk, Pant's stake was higher than that of any Eclipse investor other than Polychain, which also holds 5% of Eclipse tokens. Pant's stake exceeded those allocated to other advisors, investors, and all Eclipse employees except the former CEO.
According to two sources familiar with the matter, Somani told his inner circle that the generous token grant was intended to incentivize Pant to secure cash from Polychain and the coveted recognition of this seasoned venture capitalist.
According to Polychain officials, this arrangement was not disclosed to the venture capital firm or its limited partners at the time.
Tokens, Not Equity
This incident also provides a glimpse into the unique fundraising norms of the cryptocurrency industry, where digital tokens are often granted alongside or in lieu of any equity. Blockchain applications, digital assets, and decentralized ledgers are often touted as more transparent alternatives to traditional finance, but the ownership structures of many leading projects and cryptocurrencies remain opaque.
Eclipse Labs has built a layer 2 blockchain that offers a faster and cheaper way for users to transact on the Ethereum network. The network's main draw is that it borrows elements from the popular Solana blockchain to power key elements of its technical design—a detail that has helped it gain traction in two of the largest blockchain communities.
Token allocation is crucial in Eclipse's fundraising, as few investors receive equity in the project. Most are promised a slice of the nonexistent cryptocurrency from Eclipse—tokens that have not even been publicly announced.
This setup is not atypical. Cryptocurrency investors often provide cash in exchange for tokens instead of traditional equity, and companies rarely disclose these arrangements to the public to avoid providing ammunition to financial regulators in their struggle to classify cryptocurrencies as investment securities.
"Eclipse Labs did not disclose the percentage of ownership of the tokens to the public," a spokesperson for Eclipse Labs told CoinDesk.
According to an internal token allocation table reviewed by CoinDesk, Eclipse's employees, investors, and advisors have received nearly 50% of the future supply of Eclipse tokens.
Pant insists that his own advisory agreement with Eclipse was above board. He shared legal documents with CoinDesk showing that he would receive a 1.33% stake in Eclipse tokens.
Excerpt from the revised advisory agreement provided by Niraj Pant
This amount—revised from an undisclosed early total by Pant—is lower than the 5% he initially promised, as revealed by documents and sources, but still higher than that of all other Eclipse advisors and nearly all investors and employees.
The advisory agreement shared by Pant is dated April 29, 2024—after he left Polychain—and signed by two parties: Neel Somani, representing Eclipse Labs; and Niraj Pant, representing "The Psychological Operations Co."
Excerpt from the revised advisory agreement provided by Niraj Pant, signed by Pant and Neel Somani
According to the agreement, Psychological Operations Co. will receive a grant of Eclipse tokens in exchange for "regular phone call sync meetings" as requested by Eclipse. The agreement itself does not mention Polychain or its seed funding for Eclipse.
The version of the agreement provided to CoinDesk indicates that this is a "revision" of an early advisory agreement dated September 8, 2022—just weeks after the seed round for Eclipse, when Pant was still a general partner at Polychain.
Pant declined to share the original agreement.
Polychain's Policy
Regardless of whether Pant's advisory position began before the seed round transaction, if it started while he was still at Polychain, as his own documents attest, he may still have been required to disclose this under the company's ethical policy, which is described in lengthy disclosures to the U.S. Securities and Exchange Commission (SEC).
Olaf Carlson-Wee, CEO of Polychain (Danny Nelson / CoinDesk)
In official policy documents submitted to the U.S. Securities and Exchange Commission, Polychain wrote, "To monitor any conflicts of interest, Polychain employees must pre-clear certain anticipated transactions in their personal accounts that may present impropriety and must disclose all holdings in personal accounts for the first time and annually, as well as all transactions quarterly."
This situation is particularly noteworthy because Pant is not only a former employee of Polychain but also a co-founder of Ritual, one of Polychain's hottest portfolio companies.
After leaving Polychain last year and founding Ritual, Pant quickly became a prominent figure in the blockchain industry, seen as a thought leader at the intersection of cryptocurrency and artificial intelligence. Ritual aims to decentralize the execution of AI models and is one of a class of projects where blockchain meets AI, which have themselves become darlings of venture capital. In November of last year, it raised $25 million from Polychain and other firms.
Polychain declined to comment on whether its relationship with Ritual changed due to Pant's alleged policy violation, or whether it was aware of this misconduct before investing in Ritual.
Despite the alleged policy violation, Polychain's investment in Eclipse may still yield returns. According to a source close to the fund, its stake in Eclipse has grown tenfold since the company's initial investment in 2022.
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