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Richard Heart’s Hex Token is a Brilliant Scam

Richard Heart’s Hex Token is a Brilliant Scam
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Updated on October 25th, 2021

Before you research how to buy hex crypto, you should read this whole article before deciding if Hex is worth investing in. Is Hex crypto a pyramid scheme? No. Is Hex crypto a Ponzi scheme? Not exactly. But don’t let that fool you into thinking that Hex is a legitimate investment product.


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Hex should go down in the crypto textbooks as one of the greatest cryptocurrency scams in history because it is brilliantly executed and marketed. There are a lot of features of it that entice others to buy in for quick returns then turn around and promote it to others, all while enriching its founder. It’s also the only cryptocurrency that I have ever heard of to use ads to market in magazines, buses and taxis trying to bring in a whole new class of victims outside the regular cryptocurrency investors.

99% of cryptocurrencies are scams, so there isn’t really anything new here. But since this scam is marketed to a lot of people outside the cryptocurrency circles, and even a friend of mine put money in it, after researching what it was all about, I was amazed at how much it was carefully crafted to make the founder rich, entice others to buy in and not sell, and attempt to avoid legal scrutiny.

Get Rich With Hex Media Blitz

More on Richard “Heart” later
Advertising in the Economist Magazine. Source: Twitter
Hex on Buses
Advertising on Taxis

What Is Hex Crypto?

Hex is a token on the Ethereum network executed by a smart contract and the website advertises itself as a place to earn 40% per year with “certificates of deposit.”

You think that the 40% per year “interest” is your first clue that this is a scam?

Hex bears a lot of similarities to the Bitconnect Ponzi scheme that failed in 2017. In fact, it’s almost as if the scammer behind Hex used Bitconnect as a springboard to make an improved scam. Hex has been very careful with marketing language and product design features to both appear legitimate and to avoid legal trouble.

Their website even has an entire page on the Hex token dedicated to why the product isn’t a scam and generously educates the reader on what technically constitutes an illegal Ponzi scheme and a Pyramid scheme and why this product doesn’t qualify.

Usually legitimate investment products don’t need an entire section educating you on scams and why their product doesn’t meet the technical requirements.

I think this page is actually targeted towards any SEC or financial authority law enforcement officer that happens to come across the product rather than everyday readers to preempt an investigation.

It may not fit the legal definition of a Ponzi or Pyramid scheme only because this is the first time in history that the schemer has controlled the seigniorage that victims were receiving as interest. The scam wouldn’t work if the advertised returns had to be paid in any other asset that Hex didn’t control.

Hex also mentions in its marketing materials that two different auditors have audited its contract. But what does that really mean? To a layman, they might think that the statement means that a professional auditor like PricewaterhouseCoopers came in and reviewed it and found out it’s not a scam, or something to that effect.

But that’s not what it means. Auditing in crypto-land is evaluating the computer code for bugs. Having sound code doesn’t absolve it from being a scam if the code is written to be… a scam. I point out the scammy features in the next several sections.

And none of the Hex scam rebuttals negate the fact that the whole premise requires luring others to buy in.

Who Founded Hex?

The founder who goes by Richard Heart for marketing (his real name is Richard J Schueler). There’s nothing wrong with using a pen name except when the point is to hide a long history of shady businesses involved in spamming Viagra and anti-aging pills (which he was successfully sued for in the early 2000s) and legal trouble in Panama.  

He was even spamming courses on “how to spam” and avoid paying taxes on the spamming earnings. Fear of Missing Out (FOMO) is a great sales tactic that Richard Schueler uses continuously in everything he is involved with. Here in 2003 he offers up that he was a 23 year old multi-millionaire from spamming.

Furthermore his own blog documented other shady businesses such as selling stereo equipment he didn’t own and then turning around and giving the buyer sub-par equipment.

He has had a pretty public persona for the last few years doing podcasts, interviews and publicly challenging others about their involvement in cryptocurrency. He has built up a lot of followers on social media over the years which was the perfect set of initial buyers to market his token towards.

Ironically, he has called basically anything other than Bitcoin a scam, but changed his tune and decided he wanted to cash in.

Does a scammer ever reform, or are they always out looking for their next mark?

It is no surprise that since the crypto world is like the Wild West, that he would have gravitated to this space to enrich himself.

And enrich he has. Another one of the ways he promotes his product is by flashing his riches and comically attributing the success to his own product.

Well, yeah, Hex.com has been amazing for HIM. Bernie Madoff’s scam business was amazing for him and early investors as well for dozens of years.

What Is Interest?

When banks offer certificates of deposits they refer to federally insured bank notes and the saver is required to lock those funds up for an agreed amount of time to receive a higher rate of interest. Banks offer these because they can plan better around their federally mandated reserve requirements and lending portfolio. Everyone is familiar with them: you put in dollars, and you get dollars back later.

The Hex “certificate of deposit” is based on a smart contract on the Ethereum blockchain that follows a programmed set of rules. Similar to banks, the longer you lock up your funds, the higher your interest rate is.

But that’s where the similarities end.

You must first trade another cryptocurrency for Hex using a decentralized exchange and then when you lock up your Hex, you get more Hex tokens later.

Do you see where this is going?

This whole scam could not work if the requirement was to lock up an asset and get paid interest in that asset for an asset that Richard Schueler didn’t control and create out of thin air.

Where’s the certificate of deposit that pays in Bitcoin or Ethereum? If one exists, it sure won’t be paying anywhere near 40%.

How Does Hex Crypto Make Money?

In short, it doesn’t.

When banks give you interest, it stems from economic activity. The bank takes your money, loans it out, gets a return on the money, and then pays you part of that return. A commercial bank’s business model is to capture a spread between short term and long term interest rates. They borrow short, and lend long. That’s the core of their business and why they offer savings and checking accounts in the first place: They leverage other people’s money.

With Hex, there is no underlying economic activity happening at all. It’s not even real interest.

All the Hex contract code does is mint new inflationary tokens every year and then distributes the inflation to those who have agreed to lock theirs up for a specified amount of time.

Those who lock up tokens also get half the penalties for those who unlock their funds early, or get this, forget to unlock their funds within two weeks of the agreed upon period. Richard Schueler generously gives himself the other half.

Etherscan Source Code

So in other words, the sole purpose of the Hex contract is to redistribute value from some token holders to other token holders. Not technically a Ponzi scheme, but getting pretty close, wouldn’t you say?

Fool’s gold is not turning into real gold here.

Furthermore, the inflation does not stem from computer work in the form of electricity like in the case of Bitcoin. Inflation in the Hex system is completely arbitrary and solely exists to create funds out of thin air to pay Hex members.

Everything else being equal, your expected return from being paid inflation is 0%.

I can cut up a sandwich into smaller pieces and give it back to you and you still don’t have a bigger sandwich.

You can agree to buy a $1,000 worth of arcade tokens and earn additional arcade tokens, but if the games are increasing at the same rate you are supposedly earning, you haven’t earned anything. Furthermore, what if the arcade owner then tells you that you have to go to the street and sell your tokens to someone else if you want to convert your tokens back to dollars.

Would you take that deal?

Richard Schueler could have written the smart contract to say that every year a zero will be added to every locked wallet balance. Does that actually make anyone 10x richer? Of course not, so why does the more subtle way Hex uses this principle fool so many people?

Your balance of Hex tokens may be growing but that doesn’t translate into real earnings when you have to convert back to dollars in several years time which is why Schueler and Hex shillers spend so much effort trying to rope in new buyers to prop up the token price.

Why Is The Interest Rate 40%?

It’s marketing based on an assumption of the contract code.

The 40% number comes from the requirement that only people who lock up their funds get paid the inflation and currently only about 10% of Hex token buyers have locked up their funds. The inflation rate is 3.69% arbitrarily, for undisclosed reasons.

While only 10% might be currently locked up, I question why in the future only 10% of token buyers lock up their funds when the whole point of buying Hex would be to lock it up and get the advertised 40% annual interest? As more people lock up their tokens, the lower the reward will become. And if everyone locks up their tokens, then everyone would get 3.69%, but also losing 3.69% to inflation.

Staking

The general staking concept where holders lock up their tokens for a period of time is the norm with newer Proof of Stake styled cryptocurrency tokens. Older cryptocurrencies like Bitcoin and Ethereum require millions of computers (i.e. ASICs) running specialized number guessing hardware all competing against each other to secure the network. It uses up an enormous amount of electricity.

In contrast, staking is a newer, more energy efficient methodology whereby other people’s datacenters are voted on by each staker. The staker needs to research the datacenter to make sure that it doesn’t behave badly, and doesn’t have long periods of inactivity, because if it does, the staker’s money will be slashed. Therefore, it is a decentralized way for people to put money where their mouth is and as a reward, they earn a portion of the datacenter’s fees from processing those transactions.

When you stake with Hex, you aren’t securing a network or facilitating any underlying economic activity at all. You are just agreeing to lock up your funds so that there won’t be selling pressure. What a convenient product feature.

Scam Dynamics

In this section we take a closer look at some of the aspects of the Hex crypto token.

How Hex Started

Hex was carefully crafted to avoid the various legal tests of typical pyramid or Ponzi scams. For instance, it can’t be considered a multi-level marketing program or pyramid scheme because it only had one level of referrals built in to the adoption phase.

It doesn’t technically constitute a Ponzi scheme because it’s not only new investors that are paying off old investors.

Hex also doesn’t promise returns, it says that its returns are “designed by the code” as if simply decreeing investment returns could work in the real world.

If you cruise over to the very bottom of the page, you will see the disclaimers page where Richard Schueler has put in a copious amount of them.

It’s not a security, I swear!

I’m not selling you anything, it’s just code out on the blockchain!

He can personally decree that it is not a security but that does not constitute what a legal authority would ultimately rule on what it actually is. It looks like he is attempting to thwart the SEC from knocking on his door by carefully explaining why it doesn’t adhere to their tests.

The (Initial Coin Offering) ICO

During the first year’s claim period, you’d send Ethereum to the contract address, known as the origin address, and you were sent Hex tokens. If you wanted to change your Hex tokens back to Etheruem, you’d have to go to go somewhere else. You don’t ever get a refund from Schueler’s origin address. He keeps everything you send him, scot-free and if you want out, then you are on your own to find an exchange offering liquidity.

In interviews he always dodges the question of who owns the “origin address” that receives Ethereum and also receives half the penalty for people who unlock too early or late.

The reason why he will not answer that question is because the ICO was deemed a security by the SEC and he basically conducted an illegal one without a filing and registration. He can’t deny that he received an asset and traded it for another asset of his own product. He knows it was technically a year round ICO.

About $7 million of Ethereum was withdrawn from that origin address about a month after launch. It was conducted with 36 transactions of 1,337 ETH. 1337 is “leetspeak” for leet, which means “elite.” Hackers in the 1990s referred to others as elite if they had the best hacking skills being able to infiltrate corporate servers and websites. To me this looks like a cocky message basically bragging about how he bilked millions of dollars out of suckers.

Also, during the first year, there was nothing stopping Richard Schueler from creating a continuous loop by sending Ethereum to the origin address, receiving Hex, then sending the received Ethereum to a different address (through a laundering mixer to obfuscate this activity), and then sending it right back to the origin address for more Hex. He could mint himself as much Hex as he wanted and he did (more on that below).

How could anyone ignore that fact alone and not see how much of a scam it is?

Supply Reduction

This is really the crux of the brilliance of this scam. It’s like Hotel California: Your money checks in, but doesn’t check out.

By incentivizing Hex buyers to lock up their tokens for a number of years, it removes selling pressure and reduces the float, allowing the marketing efforts to have a more powerful effect of luring in new buyers and pushing up the Hex price.

The goal of course is to create so much FOMO that the price skyrockets and attracts an even larger set of buyers so that there will be enough trout swimming upstream to counteract the selling pressure of early promoters.

Early investors in every Ponzi and pyramid scheme make money along with the pinnacle scammer and they will defend the product without bounds to protect their newfound wealth.

Marketing

It started with lots of marketing through traditional print and online media as I showed at the beginning of this article. As stated before, this is unusual for a cryptocurrency project to advertise because search engines usually outright ban any advertisements related to crypto and print media is expensive.

The original name of the project was called “BitcoinHEX.” Remember in the previous article how I stated that usually crypto scammers seek to exploit name recognition and legitimacy by using another crypto’s name? Hex has absolutely nothing to do with Bitcoin, since it is built on the Ethereum network. But people have probably heard of Bitcoin so he wanted to give the allure to newbies that it was somehow related.

FOMO

No scam would be complete without advertising how rich people are getting along with some Lambo shilling. In addition to a bunch of exotic cars purportedly paid for with Hex winnings, there is a whole cache of items on the webpage. Clearly this is a marketing technique to bring in buyers want to get rich quick.

Instant User Base

To get it started with an instant user base, Richard Schueler offered free Hex tokens to anyone who had Bitcoin by a deadline and then submitted a claim to the website. As I also mentioned in my previous article, it’s much easier to grow a community when you instantly mint thousands of people who didn’t have do actually commit any new money to be a part of it. And since those Hex tokens were minted out of thin air and locked for a year, it didn’t actually cost him anything to give them out.

Shortly after launch he could claim that thousands of people have staked Hex in his “certificates of deposit” even though they didn’t put a dime into them. People are herd animals and feel more comfortable if there are lots of other people already involved in a product.

Adoption Amplifier & Referral Program

Schueler incentivized people to “act fast” to get a bonus.

And users were incentivized to bring in others through their referral program. Your users become your marketing shillers for free. A few websites started up Hex affiliates just for the purpose of getting the 20% referral. They didn’t have to commit any of their own money to shill the product and earn.

Richard Got a Copy of Adoption Bonus and Referral Bonuses

During the early adoption phase he also got a copy of what everyone else got. In other words, when someone exchanged Ethereum to Hex, Schueler got half of the Hex value and 100% of the Ethereum value.

He already got the Ethereum in the exchange, so why did he get additional Hex too?

And when someone was referred by another Hex user, he also got a copy of what both the referrer and referree got. Gee that’s fair.

Etherscan Contract Code

In case it’s not obvious, each time someone used the adoption method or was referred, it was further dilutionary to the Hex token pool by 2x the claim amount.

It should be pretty obvious from that the only significant whale in the Hex system is Schueler himself.

The Hex Token Distribution

Which brings us to the next point.

The distribution of Hex shows that it is highly centralized. This shouldn’t be a surprise given how much goes straight to Richard Schueler’s personal origin wallet and that he had an entire year to mint himself as much as he wanted with ETH recycling.

In an effort to pretend that there are more investors than there really are and to obfuscate the distribution of tokens, Richard Schueler created a huge number of wallets to hold his Hex stash.

Etherscan provides a tool to look at the top 500 token holders. Almost all of them were created in blocks on the same day, within the same hour. Try to find a single account in the top 150 that wasn’t funded by the origin account. Furthermore, there is a whole block of accounts that all have the same exact amount in them.

Yup, you guessed it, all funded by the origin account.

In fact, I couldn’t find a single Ether account in the list of 500, from randomly clicking, that had any activity beyond just funding Hex. I guess a wave of Ethereum whales all saw the light at the same time and became Hex-Maximalists on a brand new token that only had a $1 billion market cap! Right.

And check out this Ether address, with funds originating from a money laundering mixer all paying the gas fee on 200 accounts each with 350-400 million dollars in Hex tokens. See for yourself and do the math.

This single, simple observation shows that Richard controls more than 50% of the entire supply of Hex. His laziness to use a single account to fund the gas fees on 200 other massive accounts is much appreciated because it made the analysis much easier to collate.

So how much Hex does he control in total? With an automated account analysis program, I speculate that the data would show more than 80%. It takes a little bit of effort to track the flow of funds across accounts and it is time consuming to do it manually.

If Richard himself didn’t want to pay a 20% founders tax on a coin, why does he deem it acceptable for you to pay a 50-80% founders tax?


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I’ll note that he can’t get that value out of the system unless lots of future suckers buy in to prop up the price, which is why the marketing efforts are more broad than you typically see for cryptocurrency.

But why obfuscate his holdings? Would there be fewer Hex token buyers if everyone knew he controlled so much and the main point of the token was to enrich himself? I think you know the answer.

Whataboutism

Watch a few Youtube videos of Richard getting interviewed by someone critical of Hex.

Not only does Richard Schueler get defensive and start name calling, his response is to ask a question of why Hex can’t be thought of just like Bitcoin?

Well what innovation does Hex add to the table aside of being a self enrichment scam?

Bitcoin’s purpose wasn’t to furnish its users with investment returns, it was invented to facilitate digital payments. Conversely, Hex’s only purpose is for investment returns. Bitcoin solved a double spending problem for digital money and didn’t require sending the founder money to participate.

Schueler just saw that other scammers were getting rich creating scam-coins and wanted in on the action.

Summary


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The game theory dynamics involved in this scam are well thought out to avoid being placed in a legal category of a pyramid scheme or a Ponzi scheme and designed to keep people in like the roach motel. It’s the most blatant scam coin where it is written right into the contract that he could have minted as much as he wanted for himself for the first year of the contract’s existence, a copy of referral bonuses and adoption claims, and he still gets half of all penalties and fines.

Anyone who buys into this scam will feel supremely confident about their balance until the day it falls apart. People also thought that they were getting rich with Bitconnect until the bottom fell out one day.

A common retort of Hex shillers is that their account balance has gone up or they’ve sold and made money, so it is therefore not a scam. But a rising price for the Hex token does not absolve its short comings and just because you’ve gotten out doesn’t mean that everyone else will.

A little marketing does wonders in the crypto world and lots of other scam tokens have increased rapidly for a while because lots of people jump aboard to catch the next moon shot. Momentum is a self fulfilling prophecy, but it always reverses at some point, sometimes permanently. If there isn’t an economic driver underneath the Hex covers, then a lot of speculators are just betting on a greater fool to buy at a higher price.

Don’t forget that the earliest investors in every scam do well at the expense of later investors and need others to buy in after them to pump up the price. Those early investors will promote and defend it to no end because of all the money they are making from it. It’s no different here and you can see the Hex shill army attacking anyone critical of it all over social media. It’s like a cult.

And not unlike other cryptocurrencies, Hex requires bringing in a new set of buyers to keep the price from plummeting when those earlier investors unlock their stakes and sell. When you have a token that has gained 10,000x in a short period of time, there are a lot of people who have contributed minimal amounts of their own capital and are itching to cash out their large account balances before everyone else does.

Additionally the new set of buyers need to overcome the effects of inflation minting new tokens out of thin air and Richard’s massive share of the Hex token pool which he will have to dump onto the masses over time to cash out.

Sure, you can buy in, but are these odds you like? It’s right in the name: You are being Punk’d.



Cryptocurrency isn’t going away. Check out eToro by reading my review here or going straight to their site.


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Ryan

After graduating with $75,000 in student loan debt, Ryan began a professional career in finance, aggressively saved and invested and became a self-made millennial millionaire in early 2019. He holds a Master's degree in Computational Finance, a Master's degree in Economics, and a Bachelor's degree in Mathematics. His two passions are investing and traveling.

36 thoughts on “Richard Heart’s Hex Token is a Brilliant Scam

  1. Excellent article. But this follows into grandma‘s rule. If something is too good to be true it usually is. But thank you because individuals like myself don’t have the understanding computer knowledge and can get scammed. I was put off by the by the necklaces he wore actually in the interview. That screamed manipulation and the last guy to be real was Steve Jobs but the turtleneck did not work well for Elizabeth Holmes. Michael Saylor- is Michael Saylor last I heard. Alarm.com is running my security system. It seems like Microstrategy is a palpable company -he may be totally wrong with bitcoin but he will sink his company with it. What company is here that this guy has done?

    1. Sounds like you don’t own any bitcoin but wish you did. LOL…..What’s the price of bitcoin this morning ? Get with buddy this is 2021…that Grandma train of thought is sooooo old school. This is crypto!!!

  2. You haven’t even touched on their new cultish sacrifice thing with pulse chain. A decision they have it seems they have made because new entrants can’t afford current Eth gas prices to lock up their tokens.

    1. And the “sacrifice” was for that anti-aging research group which also has a cultish vibe. All these guys are worried they won’t have enough time to spend their millions and billions.

      I haven’t looked much into Pulsechain since it is still a testnet beta. I do wonder what angle Heart has dug out for himself inside it though. Who knows, maybe it’s a fair product this time, but I have my doubts.

  3. This is totally lie, it just perform like btc. It is too early to say. I love RH what he has done for people. Now if you believe this stranger, as he explains he won’t debate RH. And still you think is ponzi as people used to say to btc I should say people still say btc is ponzi. If I am too doubtful still I will take risk with 5to 10 %, because this time won’t come back neither this stranger who wrote wrong information. Thanks friend good luck. I think hex 100% legit and think what if RH die, this smart contract change this world.

    1. As I stated in the article, Hex doesn’t meet the legal definition of a Ponzi, because ‘earnings’ are paid in Hex: it’s done differently. In a Ponzi, new investors must be brought in to pay the old investors with an actual currency. With Hex, all investors have their token devalued 3.6% per year and then those extra tokens are paid out to those who have agreed to lock them up for some time (stakers). Again, they aren’t being paid from economic activity, but are being paid from the Hex pool capital, taking from other Hex owners. Robbing Peter to pay Paul is not a legitimate business enterprise.

          1. Was just a test contract. My understanding of main the driving force behind Pulse is the simply unusably high gas fees on ETH currently.

      1. Hi Ryan, I think this is an inaccuracy. There is no “hex pool capital”. Inflation is minted only to those staking the coin. No one is taking HEX from other owners.

        1. That’s what inflation is though. You are devaluing the value of each Hex owner through the inflation, but then turning around and paying the stakers. Since stakers get paid, but unstakers don’t, effectively unstakers are paying the stakers.

          1. Okay, I understand what you’re saying but you’re dismissing the act of staking in HEX as “non-economic activity”, however you are deferring the ability to spend your HEX today in order to get more further down the road. You are committing to not selling when the price fluctuates. HEX could go to zero and if you’re staked you can’t get out without paying an emergency end stake penalty. You are being rewarded in HEX for that delayed gratification (very parallel to the traditional bank CD). The people who have not staked took no such risk and could trade in and out of the currency as they pleased during that period of time.

            So you can say “they are effectively paying the stakers” but that relies on the assumption that you aren’t engaged in economic activity by staking and in fact you are, as I have described above.

            Another point to consider: Bitcoin also inflates and is paid to the miners who commit their hash rate, and then that dilutes non-miners of bitcoin. So by your analysis, is Bitcoin also “close to being a ponzi?” HEX just switched the consensus protocol and pays the inflation to the people willing to forego trading it, and accrue economic benefit for their effort.

          2. I disagree that ‘waiting’ or ‘deferring action’ (i.e not doing anything) constitutes economic activity. If that were the case, lazy people would all be rich. And a bank doesn’t offer CDs to encourage delayed gratification for investors, it offers them to have assurances for their own book of reserves.
            Both Bitcoin and Ethereum, which Hex is built upon, are proof of work. No cryptocurrency could not exist without the inflation for performing work. Hex could exist without inflation because no work is being performed. The inflation is arbitrary. That’s the difference.
            So, yes, technically any non-cash flow generating asset that requires bringing in other buyers to attain its value could be considered a Ponzi, if I am being loosey-goosey with the technical legal definition. But like I said above, Bitcoin invented a solution to a problem, is unique and has a vast network. The only thing that Hex seems to have invented is lots of FOMO marketing, a product feature that strongly discourages getting out, and a product feature that enriches its founder. Anyone can duplicate the Hex token with minimal effort and you can get an equivalent product. In fact, “Rex” has done just that. You can’t duplicate Bitcoin, even though lots of spawns have been attempted.

          3. Then Lazy people would all be rich? What are we even talking about, guy? We’re talking about within the framework of buying and holding a cryptocurrency called HEX, not speaking in generality about people and life. By your logic, there is no economic activity you should dislike bitcoin even more, all people do with bitcoin is buy and hope number go up. There’s no real medium of exchange to speak of.

            Furthermore, the analogy to a bank CD is just that, an analogy. Your ROI is proportional to the duration you are willing to lock up your funds for. Yes, the bank has a different reason for why they want your funds then why “HEX” wants you to stake, but honestly the difference only drives home why HEX is better than a CD. A Bank CD involves your reliance on a third party and HEX is you and the contract, no middlemen, trustless.

            Re: “Both Bitcoin and Ethereum, which Hex is built upon, are proof of work. No cryptocurrency could not exist without the inflation for performing work.”
            HEX draws inspiration from bitcoin, and you could claim HEX for holding bitcoin during launch… I don’t know what you mean it is built on. Re: Ethereum, correct it’s an ERC20. But you’re assertion that no cryptocurrency could exist without the inflation for performing work is increasingly outdated. Binance is proof of stake, Cardano is proof of stake, Solana is proof of history. Eth 2.0 (whenever it eventually arrives) will be proof of stake. Pulsechain is going to be Proof of Stake. The idea that you somehow need Proof of Work is already outdated. HEX will be copied over onto Pulsechain and you will have a copy of pure proof of stake HEX.

            Re: But like I said above, Bitcoin invented a solution to a problem, is unique and has a vast network.

            Bitcoin is old, slow, been hacked multiple times, and has never actually solved the problem it set out to solve. It never became a medium of exchange and none of the layer 2 solutions have ever gotten adoption. It’s just a speculative asset that has the benefit of network effect. Why are you celebrating this? It’s like walking around and touting your nokia flip phone. Software is always getting better and coming out with better versions of previously innovative technology which Bitcoin once was.

            RE: The only thing that Hex seems to have invented is lots of FOMO marketing, a product feature that strongly discourages getting out,

            A project that discourages you from getting out- and what’s wrong with that? It’s trading and selling bitcoin that would have caused you to miss out on 65,000x gains from just holding bitcoin (show me a trader who managed to beat the buy and hold strategy on bitcoin). HEX discourages you from doing that by paying you interest to delay gratification and see the bigger picture of where crypto is going. Why are you knocking that? The ability to trade feeds the fire of the worst aspects of human psychology. Trading gets your rekt and only serves to enrich middlemen. Staking HEX means you’re not selling when the price dips, and you’re later rewarded for patience two-fold when the price appreciates again and you’re paid the interest for staking. That’s such an improvement over bitcoin.

            RE: and a product feature that enriches its founder.

            – oh and what’s so wrong with that? Do you also take issue with Bezos and Musk being enriched for their entrepreneurial efforts? The OA has not been staking at all, and is diluted by the staker class. It gets half of the EES funds and the rest are distributed to the staker class. It’s just bizarre to me that this criticism exists. Founders should be enriched for creating something of value. HEX has and will continue to do that because it’s got an incredible product-market fit.

          4. My point is that doing nothing is not doing something. Doing nothing is not adding to the GDP or any other measurable concept of economic activity which is what would drive profits to pay interest.

            Clearly the marketing was intentional to call it a “certificate of deposit” to associate it with the concept of a bank otherwise he would have called it something else. DeFI is not automatically better because with a bank you have recourse and your funds are federally insured. Having middlemen isn’t what is preventing banks from paying 40% interest. Why no certificate of deposit that pays Bitcoin or Ethereum? Well because those returns would actually have to be generated somehow, kind of like what Nexo and Celsius do by loaning money.

            I didn’t say that you need proof of work, I said it work needs to be performed. Proof of stake still performs work, just less of it and in a more centralized manner. Instead of randomly guessing numbers with a million ASICs, a la Bitcoin, there’s 100+ datacenters processing their blockchain, voted on by individual stakers to behave well. Even staking in PoS has a purpose because you have to put money on the line. It still costs electricity and space to house those facilities. Hex would not exist as it does today without being an ERC20 token. Sure, he could create a new smart contract on another platform, but those platforms are the foundation for Hex, and 10,000 other tokens.

            I agree that Bitcoin sucks as a medium of exchange. It was good in the beginning when there was a niche user base not performing many transactions, but I do think those layer 2 adoptions such as the lightning network are taking off [link]. My other Bitcoin article [link] should show that I am no Bitcoin Maxi and I think that platforms like ETH, DOT, ADA, etc. is where the future potential is at.

            Discouraging selling isn’t necessary a bad thing if its for a purpose other than artificially driving up a price. Why? Because the price isn’t real in that case. True price discovery happens from a lot of volume of buying AND selling. Every other cryptocurrency of Hex’s size has 50-100x as much volume. If a whale comes in and drops a few million on the bid for one of those cryptos, the impact to price will be minimal. That’s not the case with Hex. It’s gone up 10,000x since inception, or whatever the latest figure is, which means that there are a lot of people ticking down the clock to the end of their stake with their $10,000,000 account balances. When a few large accounts decide to cash out at once then everyone else will find out the quoted price was all smoke and mirrors.

            Few people in the beginning could have expected that Bitcoin would go up 65,000x, so yes, everyone would have benefitted to be locked in for years, but hindsight is always 20-20. That doesn’t mean that Hex will have the same trajectory. Hex is already huge and has a market-cap of $50 billion. How much more juice can really be squeezed out at this point? If it goes up another 22x, it’s neck and neck with Bitcoin. If it goes up another 8x after that, its value is worth all the gold in the world.

            Founders of successful companies generally don’t get rich from putting into contracts that they get half of everything like Hex does. They get rich from serving others and producing value for others. Amazon makes it easy for me to go into my living room and buy cheap Chinese junk without going to a store. Apple invented the smart phone. Tesla made EVs popular.

            Hex is DeFi alchemy.

          5. One of the reasons why I mention liquidity and volume quite a few times is because it is easier to manipulate the prices of tokens with less of it. As an exemplary example that takes this to the limits, see this Reddit post on creating a fake coin with a million dollar valuation out of nothing [link].

  4. I am happy, there are few articles on this subject now, it is very transparent on web and you made it 100% negative. I hope you understand market, if there are more buy than seller price will keep going up. Like btc , like doge like Shiba Inu, what will happen if hit $100, this is like any other assets I didn’t full research, how property price go up, how stock price go up, money inflating anyway. You did do full research, I watched Evey single video of him since inception. And read book as well. You totally miss the point. If you think ponzi this is market will decide. What point will you think you were wrong? Who many years? I staked it for 15y education us after that. I hope you won’t hide face as other writer. Please can do a video explain that with investigator tom. You think you are smart, as far as I know RH. He did very single thing intensionally because we want new set of people to lead this money game. Smart people like you already have enough. Good to have this filter, to filter fundamentalist and btc oz. Just we need escape velocity 😆

  5. Robbing peter to pay Pauls par for course isnt it? Ask TCV pump fallout members in the telegram groups, there all pickpocketing each other because there the same investors. Dero piratechain monero etc

  6. I wholeheartedly disagree with the assertion that Hex is a scam. All I hodl is hex and I’m up more than any other crypto. Coins getting hacked, rug pulled and scammed all around me, yet hex is still here and going up. Don’t be salty because you didn’t buy. All of the haters have been crying and you sound like you’re on your way to the pity party.

    1. Bitcoin is still here. Ethereum is still here. Cardano is still here. Hell even Bitconnect is still here. Again, just because something still exists or hasn’t gone to zero doesn’t legitimize it. Crypto has a tendency to stick around for a long time and since Hex is a smart contract on Ethereum, I am not sure if there is even a mechanism for it to ever stop as long as Ethereum exists.

      The only argument that Hex shillers seem to have is “I’m up X% since I bought, therefore it’s not a scam.” Being an early investor and making money from it doesn’t make it legitimate any more than it does for early investors in Ponzi or pyramid schemes. Early Bernie Madoff investors made millions as well. Although eventually much of their earnings were clawed back.

      1. ETH, ADA and BTC are not scams. However, there is nothing about I think you see that’s not the only argument. But there’s nothing to claw back here because the smart contract is paying the users.

        Also, you make so many assertions that are inaccurate in this article:
        “The distribution of Hex shows that it is highly centralized. This shouldn’t be a surprise given how easy it is for Richard Schueler to mint himself tokens through the origin address.”
        – the OA cannot mint any new coins. That was a transparent part of HEX from the outset. It helps HEX from being classified as a security under the howey test. I’ve had an independent law firm look into this. If you think that the only argument HEXicans have is number go up, then you’re not engaging in discourse with the right ones.

        1. I was just pointing out that existence is not criteria for proving something isn’t a scam. Bitconnect was exposed, people were arrested, but yet its coin is still trading.
          “so many assertions” but you only bring up one thing. By design, “donating” Ethereum to the origin address is all it took to mint new Hex tokens. Therefore, creating a script and running ETH around and around in a loop for months could mint him as much Hex as he wanted. I’m not sure why you are saying that is inaccurate.

          1. I addressed one point that you repeatedly get wrong. I’m happy to do a point by point rebuttal to everything you wrote in this article if you’d like.

            This particular statement is inaccurate because you’re taking something in the past tense and speaking in present tense. And you do it repeatedly throughout the article with other phrases like “year round ICO”, “Also, there’s nothing stopping Richard Schueler from creating a continuous loop by sending Ethereum to the origin address, receiving Hex, then sending the received Ethereum to a different address (through a laundering mixer), and then sending it right back to the origin address for more Hex. He can mint himself as much Hex as he wants.”.

            The claim period has ended. What you are describing is no longer possible.
            Yet you’re intimating in your article that this is still an open door. I took the example here “This shouldn’t be a surprise given how easy it IS for Richard Schueler to mint himself tokens through the origin address”. That is factually incorrect. To say nothing of the fact that as previously pointed out, the centralization of ownership of HEX has only been beneficial to the overall system and the holders. And parenthetically there never was an ICO, an ICO is a promise of a future functionality. ADA was an ICO, SOL was an ICO. HEX was launched complete and is immutable, meaning even Richard couldn’t change it if he wanted to.

            Which brings me back to the repeated inaccuracy that your article peddles.

            Seriously though, do you want me to do a point-by-point rebuttal? Happy to dole out an education to you and all the potential readers who would come across this and mistakenly be convinced of your arguments.

          2. Thanks. I made that more clear by clarifying that the claim period was the first year (technically 50 weeks) and putting that in the past tense. That still doesn’t negate the fact that he had the ability to loop ETH through the origin address for an entire year.

            He might not have called it an ICO, but that’s essentially what it was. You sent ETH and got Hex, just like other ICOs. And since it was for a year, hence the year round label.

  7. It’s interesting that you’ve Interpreted the brilliant design as a negative. What is wrong with it being designed for price appreciation and being honest about that and the mad gains in hex’s promotion. You do realise many of the design parameters are modelled directly from what works already in the real world of cds and that yes founders do get rich? Why was it ok for Satoshi to premine 1 million btc

    1. Because the main feature of the token should have some utility or purpose other than just penalizing selling for its own sake. If Hex actually did something behind the scenes like Celsius and Nexo do like creating crypto loans then I would have a different view of it.
      Price discovery occurs through large volume in both buying and selling. The volume in Hex is abysmal compared to its market cap, so the price you see and the gains showing in your account are an illusion. All it takes is a few large holders to sell and overrun the volume and it will drive the price down much more. The last couple of days has been a good example of that with Hex being driven down 25% on light volume (relative to tokens of its size).

      I have no problem when founders get rich for innovating something useful, but core to the design of Hex is to enrich Heart. Heart’s certificate of deposit idea wasn’t even first, just better marketed [link]. BTC was untested, unestablished, and was worthless at the time but even today his million BTC just sits there. Maybe money and fame didn’t drive Satoshi, but it is obvious it drives Heart. Satoshi changed the world and spawned an entire new industry with DeFi.

      1. You keep ignoring that it’s paying interest to the staker class. And the interest rate is far higher than the APY you can get on Celsius or Nexo.

        The market cap is a fictitious notion, it’s just the latest price multiplied by the circulating supply. It is not a meaningful concept, and it doesn’t relate to volume. The volume isn’t abysmal, it’s just early stage. There are less than 70,000 stakers. Why would you hold low volume against it? The price has dropped 29% with whales taking out $11.1 MM in the last 7 days. Is that a shocker? There’s only $30M in the liquidity pair between HEX and USDC. When there are 10x more users, do you think you’ll be able to be making the same argument?

        Besides, taking the last few days out of context is just silly cherry picking. Look at its performance since inception. Do you know how many times people have dumped the price and created dips like this? HEX has dipped several times in excess of 70%. Thats the whole point of staking, to get people to realize the bigger picture, and not lose out to their human psychology because each time they would have wanted to sell, their stakes kept them from doing so. Because each time previously, it’s gone on to make new all time highs. The reason that happens is because of product market fit and people and the long term demand continues to outstrip short term sell pressure.

        Another reason its cherry picking, is to merely point out this is hardly unique to HEX: Lots of cryptos have had significant dips in recent history and have continued to recover. SOL dipped 37%, Cardano dipped 54%, that doesn’t mean they are projects without merit.

        It’s a highly innovative and speculative space. Price discovery is far more dramatic than traditional markets.

        Richard Heart has worked hard to build products that improve the space and keep users safe. You took a swipe at the fact that “audits” don’t mean what people think they mean, but those audits were done to ensure the product is safe from getting hacked. And he paid good money to have it security audited twice and audited once to prove you couldn’t game the tokenomics. Do you know how many defi projects have gotten hacked and lost their users their money, or have been exploited for poorly conceived game theory? And you’re giving him guff over that. Dude, PwC doesn’t have any employees who are remotely equipped to do what CoinFabrik and the other auditors did. And what’s more important exactly? Keeping users’s funds safe and making sure the product works as designed or having PwC write some fictitious audit of the project?

        Seriously, so much misdirected hate.

        1. I know I’m going hard on you and your analysis, but all ribbing aside, I do appreciate the fact that you aren’t censoring our dialogue which certainly is in your power to do so.

          It’s your website and none of my comments have to be published. So good for you man. Seriously.

          1. Thanks, I appreciate that. And I do think that a two-sided conversation is more useful to all readers as it adds depth and clarification to various discussion points. I think the comments section is now loner than the main article though. ha!

        2. I’ve made it clear that the stakers only get paid. But the APY is far higher because its cutting up the sandwich into smaller pieces and only giving those pieces to the stakers. Peter is still getting robbed to pay Paul. The inflation serves no purpose other than to pay stakers. I feel like we need a different word here because its not PoS staking where people are voting on datacenters.

          Market cap is important because its of the value locked in and the potential for selling. Again, price discovery comes through volume. Unusual Whales on Twitter tracks whale wallets and lately there have been some huge dormant accounts that transferred Bitcoin to exchanges, presumably for selling. The market didn’t even feel a blip.

          Being down 30% over the last week on light volume relative to its size was just convenient timing, only because Bitcoin and Ethereum are nearing record highs. Sure, plenty of other cryptos go down a lot too on high volume, but usually with high correlation among them all. I’m not saying that Hex being down while BTC and ETH are up is particularly relevant, as the opposite scenario has played out in May, but a light volume to market cap ratio is always going to be a bigger threat to the token with lighter relative volume (that’s also true on the upside as we have seen with Hex, but then it becomes the battle of FoMo versus Lambo).

          Auditing a smart contract doesn’t mean what auditing means to a layperson, and advertising that it has been audited 3x is part of his marketing campaign. As I mentioned, I pointed that out because of all the traditional marketing on buses, taxis and magazines that is targeting people who might not even know what a smart contract is or even know what cryptocurrency really is. And while being audited 3x will mitigate contract bugs, it still doesn’t remove the fact the contract protocols strongly benefit his interests and gives him a massive controlling supply.

          1. This is an excellent debate between Jordan Ledvina and Ryan. Very professional and respectful. Two guys who obviously know what they’re talking about in Finance and Crypto. Really getting into the nitty gritty of wether HEX is a scam or not. I can’t make up my mind, you both make great points…

          2. So a couple of important comments to bear in mind.

            Re: Audits, I have to strenuously disagree with your perspective here. The layperson doesn’t know anything about crypto- I totally agree with that premise. But what is exactly the problem with advertising the audits, even if these people have a misconception of what it is. Being under a misconception is only a problem when the reality is worse than the perception. In this case, thinking PwC audited this product would arguably be far worse and far less meaningful (unless they have already moved into this market segment and hired up all the best cyber sec talent). In our case two reputable security audit firms audited the code and one of them did an additional audit of the economics of the coin to mathematically prove the game theory/core value proposition that staking pays longer. This is exactly what the layman should want to see if he took the time to educate himself. So the truth is actually more optimal than what people are thinking and there’s limited space in a billboard to communicate information. So I’m not understanding what the problem is.

            The fact that the OA receives half of all Emergency End stakes is well known and readily available information. It was disclosed from the outset and no effort was made to obsfucate that. The only material question is what is in it for the user who acquires and stakes HEX as intended, and the answer thus far has been outstanding results. That OA never stakes and that has ensured outsized returns to the staker class.

            re: Market Cap; I again want to point out that Market Cap is not a relevant concept. This is a point Richard Heart has made repeatedly in his many videos, it is just price times supply. I could invent a coin tomorrow, create two trillion supply and sell my friend 1 coin for $1, and I have literally surpassed the market cap of bitcoin in a single transaction. The market cap can’t be sold or traded. The idea that volume to Market Cap matters is based on a premise that they should somehow be related. And they are not. As of time of writing, USDT has a market cap of 70B and a 24-hr volume of 68B. Does that make an ounce of sense? A low liquidity market is the sign of one thing only: opportunity. Bitcoin was best bought when it had the lowest liquidity, and the same is true with HEX. When HEX hits 1M users, there will likely be more liquidity but there will also be less opportunity. (Also Mt gox coins are coming loose in a few months… it will be an interesting test case of your hypothesis if bitcoin is truly as liquid as you suggest).

            re: PoS, I think you’re right. Proof of Stake here does not mean the same thing as it does in Cardano. You’re not voting on validators, it’s just a mechanism to determine payouts to the stakers. Transactions are of course executed on Eth which is still PoW. I think that probably is a disservices the discussion in the long run, but I feel like this is a point of nuance that doesn’t have a large baring on most people’s evaluation of HEX.

            re: Celsius and NEXO, I’ve seen you point to these products as examples of innovation in some of your responses to me and to others and I’m a little surprised because you also seem to hold the innovation of Bitcoin in high esteem. To my mind one of the biggest parts of Satoshi’s innovation in bitcoin was the trustless aspect. It removed counter-party risk. With Celsius and NEXO, we’re literally re-introducing counter-parties to make less APY. Lending platforms in crypto are certainly not novel, it’s just the last time when Cred did it they went bankrupt and users lost their money. With HEX you earn interest without a pool, and without counter-party risk, and you earn more APY doing it. To me the value proposition is superior, the game theory is superior. The only way they are the same is that Alex Machinsky and the OA could both do a rug pull, which I think is highly unlikely in both circumstances.

            It was unlikely for RH before because it would literally crash HEX and the vast majority of his net worth and it would also kill the prospects of Pulsechain and his upcoming fork of pancake swap, and his exchange etc. Squashing his users would be incredibly short-sighted and so I think HEX just offers a superior opportunity, and I don’t care if RH gets rich as well in the process as he is the founder.

            Anyway, this has been fun and edifying. As you pointed out, this is getting longer than the article itself at this point, so I’ll bow out and you can have the last word! cheers guy,

          3. 1. “The idea that volume to Market Cap matters is based on a premise that they should somehow be related.”
            2. “I could invent a coin tomorrow, create two trillion supply and sell my friend 1 coin for $1, and I have literally surpassed the market cap of bitcoin in a single transaction.”
            Thus you have demonstrated that volume relative to the size of the market is important for price discovery. Try to sell a few hundred of it and there will be nobody to buy.

            “USDT has a market cap of 70B and a 24-hr volume of 68B. Does that make an ounce of sense?”
            Yes, since USDT is offered as a pair for pretty much every crypto and it is used as an intermediary for a place to park crypto sales before buying another one if two cryptos don’t have a direct pair.

            While you are right that there was less volume to marketcap in the very beginning of Bitcoin, I think it was more of a reflection of the infancy of cryptocurrency in general. It was very niche to computer engineers or people using the dark web, few people had heard of it, and you could acquire it without trading through mining or P2P wallet transfers. At least since 2016 [link], the ratio has been 0.02 or greater which is about where it is today. The exact ratio is not itself important, it is just a reference range for comparison to other established cryptos. Some have more, some have less, but Hex has 1/50th for cryptos of its size.

            Don’t get me wrong on Celsius and NEXO, I agree they have their own problems with centralization, custody and rehypothetication. The interest rate of 8% reflects that higher risk, and frankly should probably be higher. I’m just pointing out that their returns come from people taking out loans, so its return is interest in the traditional sense and isn’t just reallocating money around in a game of musical chairs. You don’t have to buy a Celsius or Nexo token to earn those returns or take out a loan. The Anchor protocol [link] has created a decentralized loan platform, which is an interesting up and coming idea.

            I appreciate the respectful discourse you brought and we’ll have to agree to disagree on many points, but I do hope other readers have also found utility in this back and forth.

  8. This the most comprehensive criticism of HEX I’ve ever read. I don’t necessarily agree with all of it, but well done.

  9. Hey Ryan, first off just want to say a huge thanks, for all the effort you have put into this article I can clearly see that you are genuinely providing value to the crypto community.

    I was wondering if I could address the Peter getting robbed to pay Paul analogy.
    Please take what I say with a grain of salt, I am not trying to prove anything I just want to understand to the best of my ability.

    In my mind it is true that Peter (liquid HEX owners) is paying Paul (staked Hex owners)
    in the form of inflation.

    However I choose the word paying intentionally. If I were to borrow money from a friend and pay interest to them. Is there any new value created? the net worth between the two of us will still remain constant. Money changes hands in the form of interest, but no new value has suddenly appeared.

    However I can use the money lent to me for potentially productive purposes, that perhaps my friend would not have done. In this case new value has genuinely been created. e.g I use the money to open a bakery.

    Now let me try to bring this analogy into the HEX system (and please let me know if I’m employing any logical fallacies here).

    My friend would be the HEX stakers, I would be liquid HEX owners. The loan, would be price increase created by my friend “locking up his HEX”

    Just to clarify in this situation the lone is NOT the HEX owned by liquid holders, but it is the increase in the value of said HEX.

    In this situation liquid HEX holders will of course pay interest for said loan. They have the utility of the increased value of HEX. This value can then be used for economically productive purposes. (It would be like taking out a loan to open a bakery).

    Thanks for your help and time in this matter
    Kind regards
    Connor

    1. The loan analogy is a little hard to follow. In this analogy, what are liquid Hex holders getting in exchange for the interest they pay? It sounds like from your last two paragraphs that they get increased value of the Hex price. What if the price of Hex stays constant or goes down? Outside influences determine the price and there is no guarantee that the token price will climb. And aren’t locked account balances also getting that value even though they can’t immediate use it?
      But say it does increase, how is the increased price of Hex (‘loan’) paid back? There is no reversal of the transfer, both locked and unlocked balances would increase with a Hex price increase, just that locked balances would increase faster since value is permanently being shifted from the liquid holders.

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