BERA BARES ALL
Creative Studio: Sum of Parts for Zero Knowledge
Concept Dir: Shirley Yu, Creative Dir: Effie Liu
“BONg BEARS”
Most of you probably don't know what Berachain is, because you are not the correct combination of terminally online and terminally involved in crypto to have gone this deep down the rabbit hole. Nominally, Berachain is a sort of EVM blockchain, using Cosmos technology, allegedly designed to solve some of the structural problems around DeFi liquidity in the crypto space.
In reality, it was a project created by a number of crypto veterans on a pseudonymous basis, using bear-themed personalities and avatars, having created the Bong Bears NFT project previously. If a bunch of pot smoking artists don't give you confidence that they know what they are doing with institutional finance, you may not be the only one who felt that way.
Snarky tone aside, you can tell that the market agrees with this take: BERA has traded down from a high of just over $8 to the current price of $0.91 as of the time of writing. Or, in short, you would have gotten absolutely rinsed if you owned this thing. Bitcoin has gone from $83k to $90k over roughly the same timeframe (with some volatility, as is usual for crypto), just for reference, so this is not one of those situations where the whole market is collapsing. Berachain was uniquely bad.
If the story stopped there, we wouldn't be writing this newsletter. After all, projects launch, have imperfect teams that mainly appear to have been a marketing effort bereft of substance, and then collapse into obscurity all the time in crypto. In fact, one might argue that is the supermajority of crypto projects in general. But with Berachain, there is more, and that more highlights one of the biggest problems in crypto: transparency and disclosure.
BREVAN HOWARD
Reporting from Unchained indicates that the Berachain team secretly gave Brevan Howard a $25mm refund right on their investment (e.g. if it goes up, they get the gains, but if it goes down, they get a refund) without disclosing that to the community or to other investors—a due diligence nightmare.
After reporting came out about this, there was a very long-winded post by one of the founders of Berachain that very helpfully did not include a direct denial or a functional alternative explanation for what was said.
Later commentary from the Berachain folks has continued to confuse the issue, by stating that the contractual clauses revealed were intended to be a refund in the case where Berachain did not launch a token, which is a weird sort of thing to have documented as an unconditional right to require repayment for an entire year after the launch of a token.
Unfortunately, this leads to one of two conclusions: either the Berachain folks are lying to everyone, or they are incredibly stupid and got ripped off by Brevan Howard because they had no idea what the documents actually said. When the legal documents say what they say and nobody is willing to provide a refutation, someone is the sucker here. It's just a question of who that person is.
THE NON-DENIAL
After the Unchained report came out, pseudonymous Berachain lead "Smokey the Bera" issued a lengthy statement (via X dot com the Everything App) intended to allay concerns over the reported buyback deal.
It did not accomplish that goal.
Instead, Smokey's statement reeked of evasiveness and corporate gamesmanship of the least nuanced variety. Most importantly, the statement did not directly rebut the substance of the Unchained article. Instead, Smokey stated that "the story's framing is (A) incomplete and (B) inaccurate." That is, it critiques the framing, or the context or slant. Smokey also claims the story was "put together with the direct input of some bad faith actors, namely some very specific disgruntled ex-team members." Again, this is not a substantive rebuttal of any factual claims, but a vibes-based misdirect.
The statement then attacks the reporter in question, Jack Kubinec (who took the story to Unchained after Blockworks dissolved its news division in the middle of his reporting). Smokey writes that Jack was "contacting tokenholders, former employees, and ecosystem projects several weeks ago, asking all sorts of leading questions (many entirely unrelated to the topics in the final article) about Berachain."
It is absolutely pudding-brained, and clearly malicious, to try and suggest wrongdoing or deception because a reporter asked questions unrelated to the contents of a final article.
Finally, Smokey chooses a straw man to rebut, writing: "In contrast to everything implied in this piece, Nova is still one of, if not THE, largest tokenholder in Berachain." That is, Smokey is only claiming that they did not exercise the contract reported by Unchained—not denying that it exists.
As one reply to the statement put it straightforwardly, it "feels like this could be cleared up with an answer to this question. Under the terms of the contract, can Brevan get a full refund from you guys, tomorrow?"
But nowhere in the statement does Smokey address the existence or non-existence of the agreement reported by Unchained.
So that's the playbook for absolute dogshit responses to controversy: Allude generally to "inaccurate framing" or "missing context." Always describe sources as "disgruntled" when you can't dispute the substance of their claims. Definitely attack the journalist, because people love that (this last one is unfortunately true). And don't even come close to addressing the actual allegation—absolutely never.
EROSION OF TRUST
In addition to the absolutely brutal stats for actual usage of Berachain—$210mm of current TVL, on par with Cardano and somewhat behind the $1.27B on Avalanche or the $8.8B on Solana—the bigger issue is one that continues to plague the entire space: behavior that grossly erodes trust.
If we travel far back in time to the bad days of 2022, one will remember that there were multiple genuine frauds occurring in the crypto space at that time: FTX (where SBF stole the customer money and used it for things like mansions and political donations), TerraForm Labs (where Do Kwon made up an entire narrative around the Chai payments app that was not, in fact, using his chain), Celsius (not the energy drink, but rather the half-bank half-credit fund half-hedge fund that was, in fact, lying about all of it and only the bad half of each of those things), and 3AC (literal psychopaths stealing funds and bragging about it) all come to mind as examples of this. We covered the regulatory failures that enabled this disaster in COLOSSAL WRECK.
Did crypto learn anything from this experience? Have they regained trust in the eyes of retail investors after essentially defrauding half the people who showed up and then showering everyone with chants of "do your own research" and "all sales final"?
Mostly, the answer appears to be no, in a large part of the ecosystem. We still have major hacks occurring with no solution other than users losing their funds—a problem we explored in TECHNO-BARBARISM—we have things like Binance obfuscating their listing policy while charging huge undisclosed fees, and finally, to bring us back around, we have whatever this is with Berachain.
To plant a flag here: unless the crypto industry gets far better at disclosing the off-chain economic details and arrangements—basic institutional crypto compliance—unless we are honest with investors (retail especially but not exclusively), and unless we start punishing ecosystem participants who consistently engage in sketchy behavior with real crypto risk management, things will not improve but rather deprove (which is not even a word, but somehow crypto will find a way).
THE VANGUARD TEST
While traditional finance has not always been great about this, one thing that is largely true is that retail investors do not straight up have their money stolen with anywhere near the frequency that happens in crypto.
The reality is an average person buying stocks (even if they are buying them based on Jim Cramer) doesn't face 100% loss potential due to theft with anywhere near the frequency of crypto. Similarly, while there are definitely some shady things that happen in traditional finance, the rules of the game are such that out and out fraud and just not disclosing anything and running away with the money is less common. It's not zero. But it is far better than crypto, and the odds of all of the money just being stolen is very low; even Bernie Madoff's victims had non-zero recoveries.
My own mother understands very little about how the financial system works, but bought a Vanguard index fund and just let that thing ride. It worked. Nobody stole her money. Vanguard did not have a "hack" where funds were stolen from the platform. The fees were not even excessive, and in this specific aspect, Vanguard probably does outperform most of the traditional financial space.
So why bring this up? This is incontrovertibly a better experience for the average person who is not a financial expert and does not intend to spend significant amounts of time or effort on this endeavor. Yes, I understand the crypto rejoinder is "well you should," but that's simply not realistic or effective. You can't tell a doctor treating patients with brain cancer or a firefighter to just let it slide at work because results don't matter or maybe don't save those people in the burning building so you can spend more time evaluating the security of DeFi protocols and token offerings (while they make secret deals with Brevan Howard you can't find out about anyways before buying). It's a refutation of the value of specialization of labor.
What does it say that the dominant option for someone like that is "don't touch crypto at all, or if you do, buy Bitcoin through an ETF"?
THE PIVOT POINT
I think this is vastly more existential for the crypto space than people realize. If you develop a reputation for ripping people off and defrauding them constantly, you don't get infinite do-overs. It's not even a casino at that point, it's an organized crime ring. Retail has not really plugged back in after 2022, and I hold the belief that without significant behavior reform (which will likely only come through regulation), we will not recover that level of attention.
In fact, the institutional drive into this space should terrify all the current crypto operators. You don't get to scam Blackrock—institutional crypto investors demand regulatory compliance. You certainly aren't pulling that with many hedge funds, as you'll end up somewhere between bankrupt, in jail, or dead.
We're at a pivot point where change is coming, and to me, the Berachain event—be it through malice or simply stupidity—shows me that crypto isn't going to be capable of fixing this problem internally. It's either going to take stablecoin regulation like GENIUS, broader digital asset compliance frameworks, or a hostile takeover from institutions.
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Speaking of crypto being a somewhat ridiculous and insane space... What if one of the founders of a major blockchain called the FBI on someone for using that chain?
Cardano—a chain used by tens of people generating thousands of dollars of fees a year but somehow having a multi-billion dollar fully diluted value for the token—had a "technical incident" on November 21st leading to a hard fork.
Essentially, there were two competing versions of the chain for approximately 14 hours before the network managed to pull itself back together, preserving the ability for people to continue not to use Cardano in any meaningful capacity.
Charles Hoskinson, the founder of Cardano, appears to have gone on tilt and called the FBI on the user responsible for the transactions that caused the hard fork, as well as spitting out some absolutely timeless future copypasta lines, including: "You do understand what I do for a living? I literally make decentralized central banks and rebuilt Wallstreet on a blockchain."
To be clear, Cardano has not rebuilt Wallstreet on a blockchain. Right now it can handle settlement of tokens. That's it. That's the whole list. This is par for the course for Hoskinson. The "rebuilt Wallstreet" line echoes an incident way back in 2018 when a Metamask support representative directed him towards a support email address.
Charles' reply—"You're telling the CEO of IOHK, founder of Cardano and Ethereum to use the support email?"—has haunted him ever since, a copypasta testament to his oversized ego.
Hoskinson has tried to reclaim some dignity by treating that tweet as a meme, and even sold the email as something like an NFT. Did he use Cardano? No, he absolutely did not—the tweet sold for 14 Ethereum.
The mix of ego and fragility here is understandable: Cardano's MO has been move slowly, "peer review" everything, and don't break things.
So what happened when anyone dared to actually use the chain? It broke, of course. The funniest outcome is the most likely. This will also not improve trust. -
I've been hosting the Bits & Bips podcast weekly, so tune in if you want to see that, but I am also working on a much longer paper on banking market structure in the United States slated to be released in a week or so… be prepared.
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My book "Stealing the Future: Sam Bankman-Fried, Elite Fraud, and the Cult of Techno-Utopia" is out! (We got hit with a couple of rather suspicious negative Amazon reviews, so any readers who want to add their own, it would be appreciated.) C-Span taped my November 11 release event, so keep an eye out for it on BookTV.
