By: Nancy, PANews
Berachain Embroiled in Controversy: Allegations of Secret VC “Refund Rights” Shake Community Confidence
The burgeoning public blockchain Berachain finds itself at the center of a storm following an investigative report by Unchained on November 25. The report alleges that Berachain secretly granted its lead investor, Nova Digital, a unique “risk-free exit” privilege through confidential clauses. This revelation, surfacing amidst a period of weak token performance and ecosystem challenges, immediately ignited outrage within the Berachain community. Berachain officials, however, have vehemently denied these claims, asserting that Nova remains one of the largest holders of BERA tokens.
Exclusive Refund Rights for Nova Digital? Berachain Denies Preferential Treatment
The current crypto cycle has witnessed a significant shift in the landscape for venture capitalists. The “golden age” of crypto VCs appears to be waning, marked by shrinking returns, diminished influence, and increasing skepticism from the community, often manifesting as a backlash against “VC coins.” Investment firms are grappling with the dual challenge of profitability and fundraising. Against this backdrop, the alleged “investment principal preservation” scheme uncovered at Berachain has sent shockwaves through the industry.
According to the Unchained report, Berachain, which originated as an NFT project, rapidly secured over $140 million in funding within a few years, evolving into one of the most anticipated public chains. Its most recent funding round saw a $1.5 billion valuation, co-led by Framework Ventures and Brevan Howard’s Nova Digital. An anonymous former employee revealed that Brevan, while offering its “endorsement” to the project, allegedly demanded preferential terms in the Series B agreement.
Documents obtained by Unchained reportedly show that Nova Digital acquired $25 million worth of BERA tokens at $3 per token during the Series B round. Crucially, they were allegedly granted a highly contentious “refund right.” This clause would permit Nova to demand a full refund of their investment within one year following Berachain’s Token Generation Event (TGE) on February 6, 2025, specifically until February 6, 2026. The condition for exercising this right would be a $5 million deposit made by Nova within 30 days post-TGE. With BERA currently trading around $1.04, this clause implies that Nova could recover its entire principal investment, even in a scenario of significant loss, with Berachain bearing the financial burden. This “heads I win, tails you lose” investment term has naturally sparked widespread condemnation.
Nova Digital, acquired by the prominent hedge fund Brevan Howard from Dragonfly Capital in 2023, subsequently raised $9 million through BH Digital, Brevan Howard’s digital asset arm, for its liquid token strategy. Kevin Hu, formerly of Dragonfly, assumed the role of CIO at Nova Digital, reporting directly to BH Digital CEO Gautam Sharma.
Adding another layer of complexity, Brevan announced the spin-off of Kevin Hu-led Nova Digital in August 2025 (as per the original text, which may refer to a future event or an anticipated one). Insiders cited internal losses and divergent investment strategies as key reasons. Kevin Hu was also reportedly involved in Berachain’s seed round. Intriguingly, BH Digital CEO Gautam Sharma, Kevin’s direct superior, also departed around the same time. While Brevan plans to fill Sharma’s vacancy, Kevin’s position is not slated for replacement.
Neither Brevan nor Nova has yet publicly commented on these specific allegations.
The controversy deepens with the report’s assertion that no other Series B investors were granted similar refund rights. Two anonymous investors confirmed they were never informed of such special clauses. This alleged disparity could potentially violate “material information disclosure” obligations under SEC Reg D and might trigger Most Favored Nation (MFN) clauses in other investors’ contracts. At BERA’s current price, many Series B investors are facing substantial unrealized losses. Framework Ventures, a co-lead investor, reportedly faces a book loss exceeding $50 million on its 21,145,476 BERA tokens, purchased at an average price of $3.42 for a total cost of approximately $72.4 million.
In a swift public response, Berachain co-founder Smokey the Bera dismissed the report’s narrative as “incomplete and inaccurate.” He clarified that Brevan Howard, through its Abu Dhabi-based Nova fund, co-led Berachain’s Series B funding approximately a year ago, and the investment terms were consistent with those offered to other investors. Smokey explained that Nova’s compliance team requested additional clauses to mitigate risks associated with potential TGE failure and inability to list. Consequently, an additional commercial agreement was signed, which included a commitment from Nova to provide liquidity after the network’s launch. Smokey emphasized that these terms were not designed to facilitate the transaction or circumvent post-TGE token price declines, and such arrangements (like preferential rights, buyback options, or exit protection clauses for lead investors) are not unprecedented. He further asserted that Nova remains one of Berachain’s largest token holders and a dedicated liquidity provider, holding both locked BERA from the Series B and liquid BERA acquired on the open market, consistently supporting Berachain and increasing its holdings during market volatility.
Berachain’s Ecosystem Challenges: DAT Strategy Struggles to Bolster Falling Token Price
Despite its impressive funding background, Berachain’s ecosystem performance has been less than ideal in its current phase.
DeFiLlama data reveals a significant decline in Berachain’s Total Value Locked (TVL). As of November 25, its TVL had plummeted to approximately $270 million, a staggering 90% drop from its historical peak of $3.3 billion in May of this year. The ecosystem’s TVL is heavily reliant on a single protocol: liquid staking provider Infrared Finance, which accounts for roughly $230 million (86.5%) of the total. Most other protocols contribute only tens of millions or even less, highlighting a lack of diversification and a fragile dependency on a few key applications.
User engagement has also seen a noticeable decline since Berachain’s launch, with a perceived lack of sustained trading incentives. Dune Analytics data, as of November 23, shows approximately 3.24 million unique wallet addresses, with daily active wallets fluctuating in the tens of thousands. While there has been a recent uptick, a significant portion (83.7%) of addresses have completed fewer than 5 transactions, and only 1.6% have executed over 100, indicating a prevalence of low-frequency users. Cumulative transactions are nearing 289 million, with an initial surge to a peak of 2 million daily transactions in February, followed by a gradual decline to around 200,000 by September, though recent data suggests a modest recovery.
From a revenue perspective, DeFiLlama data indicates limited value capture. Since September, Berachain’s cumulative revenue has only reached about $37,000, with a mere $987 generated in the past 24 hours. Furthermore, Artemis data places Berachain among the top ten chains with the highest capital outflows over the last six months, totaling approximately $1.8 billion.
The BERA token price has mirrored these challenges, experiencing a continuous downward trend. CoinGecko data shows BERA’s price has fallen 93% from its all-time high and an additional 44.7% in the last 30 days. Notably, co-founder Smokey previously admitted in an interview that, if given a second chance, the team might not have sold as much of the token supply to VCs. He acknowledged the validity of market criticism regarding the substantial portion of supply sold in the early 2022 seed round, when the project’s eventual scale was unforeseen. Berachain has reportedly been working to repurchase tokens from seed and subsequent Series A rounds to mitigate community dilution pressure.
To restore market confidence, Berachain has undertaken several recent initiatives. These include partnerships with Infrared and TermMax to introduce fixed-rate lending and the integration of StableFlow to enhance ecosystem payment capabilities. In October, US-listed Greenlane Holdings also announced a $110 million PIPE (Private Investment in Public Equity) financing to launch a BERA treasury strategy, comprising approximately $50 million in cash and $60 million worth of BERA tokens. Investors included Polychain, Blockchain.com Digital, Kraken, and NorthT7. Despite the substantial size of this financing, the token price has not seen a significant boost, a trend that may be partially attributed to the broader cooling of the Digital Asset Treasury (DAT) sector.
(The above content is an authorized excerpt and reproduction from our partner PANews. Original link)
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