What’s the Deal with HEX?

Is HEX a scam or is Richard Heart a genius?

HEX has always been a coin that I've avoided but has piqued my interest and left me with many questions. Why are its supporters, the so-called "Hexicans", so cultish in their effusive praise of the founder, Richard Heart, while attacking anyone who dares to criticize Heart or HEX? Are these Twitter accounts solely dedicated to HEX mostly bots? Why is the market cap different depending on where you check? Is this simply another ponzi led by a cult-like figure or do the Hexicans have a point?

What is HEX?

HEX was launched by Richard Heart on December 2nd, 2019, as an ERC-20 token on Ethereum. HEX describes itself as the first blockchain Certificate of Deposit (CDs). CDs are a traditional finance product that provides an interest rate premium in exchange for locking a lump-sum deposit with the bank. 

In the "What is HEX?" video on Hex.com, it claims that HEX is "the first high-interest paying cryptocurrency" and "is actually designed to increase in value". To earn this interest, holders stake their HEX and lock it for a period of time between 1-5555 days. The longer you lock your HEX, the more interest you will be paid with the average being around 38% APY. Unlike traditional bonds or CDs, staked HEX can't be sold, so a large amount of HEX is currently time-locked with the average stake length being 6.6 years.

When users stake their HEX, that HEX is burned, and they receive "T Shares". Every day at midnight UTC, each share receives HEX rewards. Each time a stake ends, those shares are burned, decreasing the total supply of shares. Those with the most shares receive the highest interest, so as time goes by and the share supply decreases, your share size relative to the supply increases and you will receive higher rewards. Many holders will create a "stake ladder" in which they allocate their HEX into different locking periods so they can cash out on a semi-regular basis. On top of this, those who stake HEX receive half of the penalties from those who unlock early or forget to unlock within 2 weeks of the agreed upon date. The other half of these rewards goes to Richard Heart.

Since users are heavily incentivized to lock their tokens for long periods of time, this reduces selling pressure and decreases the float, making it much easier to pump the price and create FOMO.

HEX’s History

There were initially two ways to acquire HEX. Those who held bitcoin could claim free HEX in a ratio of 1 BTC to 10,000 HEX that was locked for 1 year. This created an instant community and allowed Heart to create and distribute tokens for essentially free. The other way to acquire HEX was to send ETH to the "origin address". They offered no refunds and no way to swap your HEX back to ETH, so you had to find an exchange that offered liquidity to sell. Although Heart denies it, it's obvious that he controls the origin address since he created the token. This allowed him to mint as much HEX for himself as he wanted by sending ETH to the origin address, which mints HEX, and then sending that ETH from the origin address to another address to repeat the process. Only a month after its launch, roughly $7M worth of ETH was withdrawn from the origin address.

During the early stages, HEX offered two ways to receive bonus HEX. The first was the "Adoption Amplifier", which rewarded those who sent their ETH to the origin address. The second was a referral program, which incentivized their holders to bring in more users and essentially market HEX for free. Heart received the same bonus that everyone else got during this adoption phase. This meant that every time someone sent ETH for HEX, Heart would receive the ETH as well as the full value of HEX. Also, when someone was referred, Heart would get the same bonus that both the referrer and referee received.

Since its release, HEX has increased over 10,000x to a peak of 55 cents while forming a large and extremely passionate community. Currently, there are over 450k holders and about 100k stakers with 10% of the total supply being staked and $2B TVL. Their website (which takes data from nomics.com) claims that its market cap is about $5B with a circulating supply of 582B HEX, making it the 18th largest crypto. However, many have questioned the legitimacy of this data with CoinGecko showing the market cap as unknown. Even stranger, CoinMarketCap claims to have verified the circulating supply to be 173B but displays the market cap as $8.7B while ranking it as the 201st largest crypto. In the past, CoinMarketCap displayed it in the top coins with a peak rank of #5, but they manually moved it to rank #201 so that it doesn't show up on the front page. Richard Heart and the Hexicans claim that these companies are gatekeeping and purposely excluding HEX from being in the top ranks because they are threatened by it. However, this is likely due to the T Share model which makes it difficult to calculate the total circulating supply and the fact that it's not listed on any major exchanges. Since its peak, HEX has fallen 90% and now sits at just above 3 cents.

Chart of HEX

Richard Heart

Richard Heart (Richard Scheuler is his real name) is the founder of HEX as well as PulseChain, which is an upcoming Ethereum hard fork that contains a copy of every smart contract, token, and user that is on Ethereum. Early in his life, Heart started multiple companies with his most successful being a mortgage business in which he worked on SEO and pay-per-click management. He made the company $60M per year under his management, which allowed him to retire early. However, looking into his past business endeavors shows a history of shady practices and straight up scams. In this blog post, he explains that his first business involved selling stereo equipment that he didn't even own. Later in his life, he became notorious for running multiple spamming businesses, earning him the title of "Spam King". Below is an excerpt from a "how to spam" course that he ran.

Shortly after his retirement, Heart discovered Bitcoin at $1 while scrolling through Reddit, which led him to take a deep dive into cryptocurrencies. Heart believed that Bitcoin contained serious flaws and departed from its original intentions, so he created HEX to serve as better alternative.

Nowadays Richard Heart can be found talking down to "haters" and flexing his wealth and extravagant lifestyle while wearing decadent designer clothes along with a huge chain with the HEX logo. His website contains even more boastfulness, claiming "Richard Heart makes the world a better place" and showing off that he owns the world's largest diamond and a $5M watch collection. Despite this, his followers are quick to point out his charitable actions, citing his self-help material and $27M donation to medical research.

Heart flexing on Twitter

The Hexican Community

Richard Heart built up a massive following through podcasting and attending crypto conferences to call out speakers. Most notably, he called out Craig Wright in front of a crowd at the AIBC Summit for falsely claiming to be Satoshi Nakamoto, resulting in a large spike in followers. Once HEX launched, the "Hexican" community formed and started relentlessly shilling and defending the project.

The Hexicans are possibly the most passionate and crazy community in all of crypto. Any time anyone criticizes HEX or Richard Heart, an army of Hexicans pop up to attack that person and defend Heart and the project. Often times, they repeat the same pitch, stating how amazing and charitable Richard Heart is while boasting about HEX's immutability, decentralization, and 100% uptime. There are thousands of Twitter and YouTube accounts solely dedicated to HEX and PulseChain like the one shown below. Some suspect that many of these accounts are bots, which the website addresses and denies. However, it is certainly fishy, especially when you see multiple accounts saying the same thing verbatim.

Is HEX a Scam?

There are so many red flags with HEX it's not even funny. They aren't listed on any of the major exchanges and don't even have a whitepaper. Also, the official Hex.com even has a page solely dedicated to proving that HEX is not legally a scam while providing answers to a series of related questions. No legitimate project would ever have an entire page explaining how it's not a scam, and some of the answers to these questions are completely laughable.

HEX's marketing is eerily similar to other get-rich-quick schemes. Their public advertising (as seen below) often states how "HEX's price went up 11,500% in only 129 days!". They also constantly advertise their 38% APY yield and talk about all of the people who became millionaires because of HEX. In a commercial that aired on MSNBC before it had even launched, they display yachts and money raining from the sky and state that "HEX can make you truly wealthy". Once again, no legitimate project would center its marketing on how much money it will make you, and HEX is clearly targeted to naïve investors looking for an easy way to get rich.

HEX states that it has been triple audited, which may sound good, but it certainly doesn't prove that it's not a scam. All that these audits prove is that they couldn't find any bugs within the code. However, just because the code doesn’t contain any bugs doesn’t mean that the code itself isn't a scam.

HEX has no hard cap and inflates 3.69% per year. Since these yields aren't coming from any actual earnings, the yield is simply the inflation paid out to its stakers. Therefore, HEX requires new investors to absorb this inflation or current holders to reinvest, or else it will crash. As the market cap increases, more and more money must be drawn in to absorb this inflation and maintain its price. Multiplying the market cap by the inflation rate shows the amount of money that has to be brought in or locked back in to absorb inflation. Eventually when the buying pressure cannot make up for the inflation, the price will grind lower and lower as it continues to inflate.

Looking on-chain reveals some extremely sketchy activity that was performed to make HEX look more legitimate. A single address sent batches of exactly 100 or 101 HEX to 173k wallets that have been inactive ever since. Out of the first 100k HEX holders, 91,964 never even bought the token and have exactly 100 HEX in their wallet. Also, out of the top 500 holders, almost all of them were created within the same exact hour on the same day, and was funded by the origin wallet, only to remain inactive ever since. On top of this, this address paid the gas fees for 200 separate wallets that contain $350-400M of HEX each. Adding up all of the addresses that were funded by the origin wallet reveals that Heart controls 88% of the total HEX supply. He could pull the rug at any time but will likely drag it out as long as he can and slowly dump his tokens, milking every last bit of profit he can from his investors. The low float combined with its extremely low volume compared to similarly valued cryptos makes the price much easier to pump. Therefore, HEX can display a far larger market cap than is actually representative of its value.

The bottom line is that Richard Heart has a history of shady business practices and legal troubles, and HEX is no different. However, since crypto is mostly unregulated and HEX doesn’t fit the legal requirements of a ponzi scheme, Heart will likely get away scot-free. Nevertheless, it’s been said that scams pump the hardest and buying into HEX at the beginning could've been a life-changing investment. Be that as it may, now that the bubble has popped, HEX will never recover and the Hexicans that remain will be stuck holding their inflating worthless bags.

Written by: Zachary Rampone

@nfthunter131 on Twitter