Berachain embroiled in "zero-risk investment" controversy

Author: Jack Kubinec, Unchained   Translation: Yangz, Techub News

In late 2024, thousands of partygoers flocked to a Singapore nightclub for a party co-hosted by a bear-themed, yet-to-be-launched blockchain project called Berachain. The queue for entry snaked through a Singapore mall, stretching beyond the reach of some onlookers.

Berachain had by then grown from a bear-themed NFT project launched in 2021 into one of the hottest new blockchains in the cryptocurrency space. The startup had raised at least $142 million in venture capital, and in its latest funding round, its token was valued at $1.5 billion. That round was co-led by Framework Ventures and Nova Digital—the latter being a crypto arm of the $34 billion hedge fund Brevan Howard.

The key to this funding round lies in the brand influence of one of the world's most renowned investment institutions, which brought credibility to Berachain. A former employee, who wished to remain anonymous, recalled that Berachain's anonymous co-founder, Papa Bear, pointed out that Brevan's investment could help the project gain recognition. However, what is less known is that the terms of the Series B funding round were an exceptionally favorable deal for Brevan's Nova Fund. Documents obtained by Unchained show that Berachain granted the fund a refund right, allowing it to return its $25 million Series B investment principal within one year of the Berachain Token Generation Event (TGE) on February 6, 2025. This refund clause means that, unlike traditional venture capital, Brevan's fund does not bear any risk to its principal. If Berachain's BERA token performs well, the fund will reap a return; if BERA performs poorly, the fund can demand a full refund. Four lawyers specializing in the crypto space stated that it is highly unusual for a crypto project to grant investors a refund right after TGE. Two of the lawyers pointed out that in token financing, even if a refund right clause does exist, it is usually only triggered if the project fails to successfully issue tokens. Given that the token price has fallen by approximately 66% from its $3 investment price, it would be financially sensible for Nova Digital to exercise its refund right. And if it does request a refund, it could force Berachain to shell out $25 million in cash to repay one of its own backers. According to project documents, the tokens purchased by Berachain investors are subject to a one-year lock-up period. Therefore, if Nova chooses to exercise its refund right, it will likely forfeit its allocated BERA tokens. It is currently unclear whether Nova Fund's refund right is legal—especially if the existence of this clause has not been disclosed to other investors. Nova Digital's deadline for exercising this refund right is February 6, 2026. Nova's Bora Bet The deal between Brevan Howard Digital and Berachain was facilitated by Nova Digital Master Opportunities Fund Limited, a fund Brevan acquired from crypto venture capital firm Dragonfly in 2023. According to a source familiar with the matter, Nova's operations within Brevan Howard Digital are led by Kevin Hu, who personally invested in Berachain's seed round. The documents show that as part of the chain's Series B funding round, Nova Fund invested $25 million in Berachain in exchange for BERA tokens priced at $3 each. Other investors included Polychain, Hack VC, Arrington Capital, and Tribe Capital. This refund right agreement is outlined in a subsidiary agreement dated March 5, 2024, attached to the Brevan Howard Digital investment term sheet, titled "Nova Side Letter." A copy of the Nova Digital investment term sheet obtained by Unchained can be viewed here. Nova Digital's SAFT (Simple Agreement for Future Tokens) is here, and the subsidiary agreement containing the refund right can be viewed here. Sources say that venture capitalists within Brevan Howard Digital, excluding Nova Fund, did not request refunds from their portfolio companies, highlighting the unusual nature of this arrangement. Smokey the Bera, an anonymous co-founder of Berachain, stated in an emailed statement: "The reports (from Unchained) are neither accurate nor complete. Brevan Howard remains one of Berachain's largest investors. Their investment involves multiple complex business agreements, but they participated in the Series B funding round based on the same documentation as all other investors." The project declined to answer specific questions, and Smokey the Bera did not elaborate on these business agreements. According to the terms of the subsidiary agreement, Nova Digital must deposit $5 million into Berachain within 30 days of the Token Generation Event (TGE) to exercise its refund rights. Unchained was unable to verify whether Nova had deposited the $5 million, nor whether the fund had exercised its BERA token refund right. Ashwin Ramachandran, co-founder of Brevan Howard Digital and Nova, declined to comment on refund rights. Hu also did not respond to multiple requests for comment. Furthermore, according to sources, Nova Digital is currently splitting from Brevan Howard due to disagreements over risk tolerance and strategy. The Nova fund will operate independently, and once the split is complete, Brevan will no longer have any affiliation with Berachain. At the time of this writing, Brevan Howard Digital is still listed as a supporter on the Berachain website. A Rare Proposal: Gabriel Shapiro, co-founder of MetaLeX Labs and a veteran crypto lawyer, estimates he has participated in over 50 token funding deals, but he says he has never heard of a precedent for granting TGE refund rights after a funding round. He states, "The most likely reason a company would enter into an agreement with a lead investor granting them an unconditional right to demand a full refund is… (the company) can use this to tell other investors… this round was led by this institution, which makes other investors more likely to invest, or more confident in the security of the chain." However, in a recent rare case where token investors were granted refund rights, all parties involved received this clause. The Flying Tulip project, announced earlier this year by DeFi developer Andre Cronje, granted all investors unconditional refund rights in its $200 million funding round to provide downside protection for their investments. Moreover, unlike Berachain's case, this "perpetual put option" was publicly advertised. In the history of cryptocurrency development, SAFT investors have occasionally received refunds due to projects failing to issue tokens on time. However, even then, those transactions did not offer refunds for poor token price performance. Was important information omitted? Two lawyers familiar with capital market regulations stated that whether Berachain had a legal obligation to disclose this redemption right to other Series B investors is an open question. One lawyer pointed out that, typically, under the anti-fraud requirements of the SEC's Rule D, companies seeking funding must disclose "material information" to all investors, but the rule does not define what constitutes "material." Two anonymous Berachain Series B investors stated that Berachain did not inform them that another investor was entitled to a refund. Shapiro stated, "If I were an investor and someone approached me about participating in this funding round and told me 'This round is led by Brevan Howard,' without disclosing that Brevan Howard has a full refund right as part of the deal, I would likely feel misled into investing." Specifically, this refund right could also risk violating Most Favored Nation (MFN) terms, which grant early-stage venture capitalists the right to the same preferential treatment as later investors. According to multiple sources, at least one other Berachain investor besides Nova Digital has an MFN term applicable to their Series B funding round. Aaron Brogan, founder and managing attorney at Brogan Law, stated, "It depends on the specific wording of the MFN terms, but (Nova's refund right) will likely trigger the standard version of that term." Brogan also indicated that the applicability of MFN rights may depend on whether the investor receives tokens or equity. According to a venture capital firm lawyer who wished to remain anonymous, the triggering of the MFN clause could also depend on other factors, such as whether Brevan Howard Digital's fund agrees to provide services beyond the investment, which could be used to justify its acquisition of additional rights. (This could provide a reasonable interpretation of the "commercial agreement" mentioned in Smokey's statement.) However, the lawyer noted that in the absence of such an arrangement, or without a significant difference in investment amounts, the refund right in SAFT token sales is generally applicable. The Neglected Investors Regardless of the legality of this refund right clause, the token's plunge since TGE has been a blow to all venture capital firms that invested in Berachain, especially Framework Ventures, the crypto venture fund that co-led the chain's Series B funding round with Nova Fund. Unchained has learned that as of the end of Q2 2025, Framework held 21,145,476 BERA tokens, with a total acquisition cost of approximately $72.4 million. The average purchase price of these tokens was $3.42, meaning that at current prices, Framework's unrealized loss on these BERA tokens would exceed $50.8 million. Framework Ventures did not respond to multiple requests for comment. Furthermore, assuming other investors invested in Berachain's $100 million Series B funding round at the reported valuation of $1.5 billion, they would also suffer losses. As of press time, BERA's total circulating value (FDV) was approximately $526.7 million. The Poor Performance of BERA If BERA had performed well after its launch, this refund right might have become irrelevant, as retaining BERA would have been in Nova Digital's best interest. Unfortunately for Berachain, this has not been the case so far. Currently, BERA is trading near its all-time low of $1.02, just one-third of the $3 per coin price at the time of Nova Digital's investment. According to Artemis data, as of last Friday, Berachain has already experienced a net outflow of approximately $367 million in funds by 2025. According to two sources familiar with the matter, Dev Bear, the technical co-founder of Berachain, is no longer involved in the project. Dev Bear did not respond to requests for comment. Furthermore, on November 3rd, due to a code vulnerability in the DeFi protocol Balancer that put some funds in Berachain's native decentralized exchange BEX at risk, Berachain validators suspended network operations. Berachain resumed operations a day later and successfully recovered $12.8 million in threatened funds from a white-hat hacker. BlockHunters co-founder Ioachim Viju (who produced a documentary called *Straight Outta Berachain*) told Unchained that in recent months, some applications launched on Berachain have shut down or migrated to more popular blockchains, such as Hyperliquid. He cited IVX and Memeswap as examples. Viju said that the Berachain community is now "very, very small." He added that the once-active Berachain-related X Spaces now struggles to attract more than a few dozen people. "I want to be clear that Berachain, especially Smokey, has had a huge impact on my personal growth and career. Without Berachain, I wouldn't be who I am today," Viju said. "Of course, they made mistakes, and even Smokey admitted they probably shouldn't have sold so many tokens to venture capital firms. But ultimately, he's still here, serving the community and working to bring real businesses to Berachain." A Road to Revenge? With user metrics stagnant and only months remaining before Nova Digital's deadline for exercising its refund rights in February 2026, Berachain is trying to turn public opinion around. On October 20th, Greenlane Holdings, a tobacco accessories, e-cigarette devices, and lifestyle products company, announced the completion of a $110 million private funding round to implement its BERA treasury strategy. According to the press release, investors in this DAT funding round included Polychain, Blockchain.com, Kraken, North Rock Digital, CitizenX, and dao5. In addition, Polychain, one of Berachain's venture capital backers, announced in a filing with the U.S. SEC that it intends to add two members to the company's six-member board of directors upon the close of the transaction, and two more members pending shareholder approval. According to promotional materials attached to the SEC filing, Berachain co-founder Papa Bear will serve as an advisor to the company. SmokeyTheBera recently wrote on X that Berachain's founders possess a "strong sense of responsibility and pride" and will not "quietly exit" after TGE. He added, "Bera's path to revenge is loading." Following the brief surge in Greenlane's stock price following the BERA DAT news, it had fallen back to around $3.19 by Friday afternoon, with the BERA token price also declining during the same period. During a stage interview at this year's Token2049 conference, Smokey the Bera was asked how apps and founders can succeed in the crypto industry. His advice was: Don't chase narratives, create your own. "So what is a narrative?" Smokey continued, "Honestly, I think it's basically all nonsense. It's just a group of people saying the same thing over and over again."