HEX is the most polarizing cryptocurrency I have come across. It’s like Donald Trump. Half the people think HEX is going to make crypto great again. The other half can’t stand it. In this post I am going to explain HEX to you like you were 5. It’s pretty easy to wrap your head around. You only need to understand 10 things to get the full picture. After reading this article you will know what HEX cryptocurrency is, how it works and why people get so riled up about it.
Are you sitting comfortably? Good, here are the 8 things you need to know about HEX.
1/10. What is HEX crypto?
HEX is a cryptocurrency token that rewards you with more HEX the longer you lock it up. It funds rewards by creating more HEX.
That’s all it is.
HEX likens itself to a certificate of deposit.
You know those savings accounts that banks offer where, if you lock up your money for a fixed period of time, you get a higher interest rate? That’s what a certificate of deposit is.
You may also know it as a time deposit. Unlike a normal bank account, you can’t withdraw your money early. If you do, you need to pay a penalty.
In the US, the FDIC insures certificates of deposit of up to $250,000. They are the second largest investment vehicle that banks offer. In fact, people have invested more than $100Bn in time deposits.
In a similar manner, the HEX team offer a savings account product that rewards you with more HEX the longer you lock it up.
For those who want to be down with the crypto slang, another word for “locking up” is “staking”.
HEX touts itself as the first blockchain certificate of deposit.
Also, HEX is an ERC-20 token which means that it lives on the Ethereum blockchain. Hence, you have all the security and robustness that comes with Ethereum.
Let’s explore how it all works.
2/10. How does HEX cryptocurrency work?
Let’s play a game.
Here are some tokens. I have created (minted) them out of thin air by cutting out some pieces of paper.
Here take some. You can have those for free cause we are just starting. Later on, players of this game will have to buy such tokens from my shop if they want to participate.
Now, here is the first rule of my game. If you lock them up in this safe, say for say 5 years, then I will give you more tokens.
Every day, I will cut out more tokens and keep them for you. After 5 years you can take your original (principal) amount plus some extra tokens.
How many extra tokens can you take?
Well, if you’re the only one who has locked their tokens away then you can have all of them.
But what if another person has added tokens? How about you each take a proportionate amount of extra tokens. For example, if I lock up 30 tokens and you lock up 70 then I get 30% of the extra tokens and you get 70%. Sounds like a good idea except HEX has come up with something more nuanced.
Now pay attention. This one threw me off when I first learnt about it.
A primer on HEX Shares
When you lock up your tokens in the safe you find out it isn’t really a safe. It’s a furnace!
The furnace burns you paper tokens.
Wait, what? Where are my tokens man?
Don’t worry, there is a way to make you whole again.
In order to keep track of how many tokens you have, you get a receipt called a share. The first time round, users got 1 share for every token they put in the furnace.
But here is a clever twist.
Longer and bigger is better
You get bonus shares for locking up longer and larger amounts.
Say I lock up 100 tokens for 5 days whereas you lock up 900 tokens for 5 years. Then, while I will get only 100 shares you might get 1,400. That is 900 shares that correspond to your 900 tokens plus 500 shares as a bonus for locking up a larger amount for longer.
Now, here is the beauty of using shares. At the end of our staking periods the extra tokens are rewarded in proportion to the number of shares.
So after my staking period ends I will get 100 / (100+1400) = 6% of extra tokens whereas I staked 10% (100/100+900). However, because you placed larger stakes for a longer period you get a bigger piece of the pie.
Share token exchange rate
There is one more thing I want to tell you. The exchange rate between shares and tokens updates every time someone claims their tokens.
Remember I said earlier that the exchange rate started off at 1 share = 1 token.
Say I staked 100 tokens for 10 days.
Assume there is no bonus.
So I lock up my 100 tokens and get 100 shares in return. All good in the hood.
After 10 days I end my stake and get 100 tokens plus, say, 10 extra tokens (random number) as interest. Now the share price will update to 100 shares=110 tokens. So now 1 share =1.1 token or inversely 1 token=0.9 shares.
This happens on purpose. It means that the next person who comes along and stakes 100 tokens will receive 90 shares instead of 100. One reason for setting it up this way is to reward early stakers more than late stakers.
FYI, currently 1 share = 2.5 tokens.
Ok, let’s move away from the paper tokens analogy and look at the specifics of HEX.
3/10. HEX cryptocurrency specs
HEX uses a smart contract on the Ethereum Network. This smart contract dictates all the above rules and sets them in stone. So it is a more robust solution compared to cutting pieces of paper out.
HEX has a total supply of 633Bn tokens. This is probably inspired by Dogecoin which played on human psychology.
If you have a 100 bucks you can own 100s of Dogecoins but only a fraction with many decimals of Bitcoin. To those with logical minds it is extremely frustrating that something like this would appeal to the masses. But it does. Ergo, there is nothing we can do about it
Back to HEX
Out of those 633Bn about 10% is staked.
You can stake anywhere between 1 day and 15 years. The average stake is 7 years and there are about 400K active stakes at the time of writing.
HEX Yield is higher than its inflation
HEX prints tokens daily which results in 3.69% inflation per year on average. I say on average because if you don’t submit your shares to claim your tokens nothing gets minted. Remember, when you stake (lock up) your HEX in a smart contract those tokens are burnt. You HEX plus any HEX in interest are only minted when you actually un-stake and claim your tokens.
Note that the 3.69% is based off of the total supply not the circulating supply. So it ignores the fact that some tokens have been burnt. It still counts them virtually.
Now, because only ~10% is staked, the 3.69% is distributed over the 10% that is staked. This results in a yield of about 38% for those who stake.
Right?
You get it?
No?
Think of it like this. Say the supply is 100 tokens. And say only one token is staked. Then this one token would receive 3.69 tokens at the end of the year i.e. 369% yield.
If 10 tokens were staked then returns would be (10+3.69)/10-1=37%.
( I end up with 37% and not 38% because i have rounded the numbers up).
But remember this high return is in HEX cryptocurrency tokens not in dollars. Higher interest rates like these were introduced by Olympus DAO. It makes you think, “Oh my gawd! 38%! I am going to be so rich”. But you need to think about the actual value of the token. More on this further down where I discuss the criticisms.
4/10. HEX Penalty fees
There are two types of penalties:
i. Early withdrawal fees
Just like with a certificate of deposit you pay a penalty if you withdraw you HEX early. If you un-stake your HEX early, you pay the interest due for 50% of the days you committed to stake. E.g. if you committed to 200 days and un-stake on day 20 you need to pay 100 days worth of interest. Note that his could cut into your principal. Also, you pay a minimum of 90 days no matter what.
ii. Late withdrawal fees
There is also a penalty of 1% per day for those who withdraw their HEX late after a grace period of 2 weeks.
So you need to be on the ball with HEX.
Now there are 4 ways in which you can earn returns:
5/10. The 4 ways HEX token holders earn returns
- Price appreciation. You buy low and sell high. For this to work HEX’s narrative that it is better than bitcoin has to play out. People have to believe that HEX is the next big thing.
- Staking HEX to get rewarded in interest.
- Staking HEX to get rewarded in early withdrawal fees. Yup, it’s true. 50% of the early unstaking penalty fees go back into the reward pool.
- Late withdrawal fees. That 1% in penalty per day for late withdrawals is moved to the staking pool.
Ok, before this article becomes a technical manual there is one last thing you need to know before we spice things up and talk about the founder (Oh yeah! He’s spicy)
You know those paper tokens I talked about. I was referring to hearts. One HEX is equal to 100Mn hearts. And 1 Trillion shares is equal to 1 T-Share.
Congratulations! You’ve now completed all the technical stuff and terminology there is to know.
Hearts are named hearts after their founder Richard Heart. Richard is a key reason why the HEX cryptocurrency riles people up.
6/10. The controversial founder of the HEX coin
Richard Heart is a controversial character. You cannot have a neutral opinion. I’ll give you a flavor with some photos and podcast excepts.
“I get it right all the time. As the years have passed everyone is finally like “oh Richard is right again. He predicted it would happen again. It just sucks that it takes years for people to figure it out. “” From Richard Heart’s interview with ACEWEEKLY.
“…Is anyone in the entire world ever said a bad thing about me that did business with me. Everybody that ever bought car stereo equipment got a wonderful deal. Anyone that ever got a mortgage got a wonderful deal. Anyone that ever listened to my price calls got a wonderful deal. I called the 20,000 dollar Christmas top in 2018 from 3 to 4K. I called the top on the day of the 65,000 dollar top. On the day! ON THE DAY!!! I said that the fractal of last cycle was 27 days later Ethereum would die[sic]. Exactly 27 days later Ether died. For FREE I did this.
I just raised 27 million dollars for charity. Has anyone else ever raised 27M dollars for charity. EVER in history? No! It’s just me. I have a self help YouTube channel, self help books, raised 27 million dollars for charity… I can’t be a better human being. I’m absolutely winning the game at any single level possible. Not a single human being in this planet can say I ever did anything bad for them. Like scammed who? …I, Richart Heart, am the best person in cryptocurrency. Measurably. Objectively. I also founded the highest performing asset in the entire space. This has 100% uptime. Does coinbase have 100% uptime. Nooo. …My stuff has 100% uptime always…The reality is I’m amazing and what I built is amazing. ” From Zuby’s podcast with Richard Heart.
HEX early beginnings
Richard Heart started HEX cryptocurrency in 2019. Prior to that he says he employed 150 employees and ran businesses across a bunch of verticals from installing car stereos to adult toys and mortgages. Around 2011 he came across a discussion about bitcoin on Reddit and bought some. He has since become very rich.
Despite many people finding him obnoxious all the flexing seems to be paying off. Richard has almost 300K followers on Twitter and a similar amount on Instagram. Most notable there are more than 500K HEX wallet addresses (what is a crypto address). Which means that whatever his angle is, it is working with his audience. There is also a community of HEX users who call themselves Hexicans. They are out there hyping each other up.
Given the inflationary mechanics and the lack of any other utility for the HEX token there are many who criticize HEX as being a fraud. Let’s check this angle out.
7/10. Is HEX crypto a scam?
The mechanics of HEX are simple. Stakers are rewarded with inflation and staking removes HEX from circulation leading to basic pump-anomics: reduce supply and, all else equal, price will go up (it hasn’t). The question is whether and how many people are going to believe this cultural narrative.
If everyone agrees that HEX cryptocurrency is valuable then the time lock aspect of the token is set to give you heaps of FOMO (fear of missing out). With a brand ambassador like Richard Heart the brand has serious potential for virality. Kind of like how Dogecoin was ridiculous until it wasn’t.
Also, this blockchain is going for mass appeal with heavy investment in advertising. They’ve sponsored NASCAR cars, sent flyers in the mail, and placed ads touting HEX’s 11,500% price appreciation anywhere from subway stations to the Economist.
Richard also plans to expand the HEX ecosystem by forking the ethereum network. This new blockchain, PulseChain, is already stirring a buzz by promising multiple airdrops. But more on PulseChain in another post.
But here are what critics highlight as red flags.
i. He is not very transparent about his name
The dude’s name is not Richard Heart. It is actually Richard J. Scheuler. Ok fine. Crypto is full of pseudonyms. No biggie.
ii. He has been investigated for fraud
The guy was sued by peacefire.org for violating anti-spam laws in 2022 and was investigated by authorities in Panama for theft and extortion in 2005 and 2007. In podcasts, Richard owns up to this but claims that he was set up.
iii. It’s no really a certificate of deposit or a store of value
The certificate of deposit analogy is somewhat misleading. A certificate if deposit is insured by the FDIC and considered a safe heaven of your dollars. If you put your dollars into HEX cryptocurrency there is no guarantee that you will get you dollar value back. The price of HEX has been following the crypto downturn.
I’ll give you an example.
Let’s plug in some numbers to see what your returns would look like based on past performance.
So say you bought $1,000 worth of HEX last year on the 30th of November 2021.
The price of HEX was $0.17. This means you would have purchased 5,882 HEX.
Say you stake for a year and say you get back exactly the average amount of 38% (it’s actually less than that but let’s go with the average).
So after one year I have 8117 HEX. I can now cash out. Except the price of HEX has dropped. It is now $0.025.
So I get back 8117*0.025=$203.
Oops.
That’s an 84% drop. For comparison, the price of BTC dropped 72% over the same period.
iv. It is ponzi-like
This is a common argument in crypto. And people get bogged down in the technical definition of what a ponzi is. Technically, in a ponzi scheme new investors fund old participants. HEX has a tab on their site explaining why they are not a scam (how strange is that?). And it’s true. HEX rewards do not rely on new users. They rely on inflation which is transparently defined in a formula. So technically they are not a ponzi.
But be careful because other crypto projects have said bring me you money you can trust me and then blown up (read about Terra Luna for example)
In order for the golden goose to keep on giving, the price of HEX needs to be stay up. The incentive structure entices you to stake. By staking you reduce supply. All else equal, less supply results in a higher price. Which results in a virtuous cycle of attracting people to come in and stake. Everything is fine until it isn’t.
Because at some point people are going to start cashing in on their stakes. And this will mint tokens and increase supply. As a result, this will put downward pressure on the whole thing. The other factor to consider is external market conditions. As the market is going down HEX is going down with it.
I collected most of these arguments from The Blockchain Guy. He has a couple of more if you care to watch.
The Blockchain guys lays out his arguments as to why he believes HEX is a scam.
8/10. Wrapping up HEX cryptocurrency
The way that HEX works is simple. It presents itself at the first certificate of deposit that is crypto native. Stake your HEX and you receive rewards via inflation. The longer the lock-up period and the higher the amount the more rewards you can claim
HEX cryptocurrency holders are stoked. Many of them made a lot of money. Also while I did not find any technical manual or whitepaper on hex.com itself I did find a lot of documentation and websites put together by Hexicans themselves. So there is definitely a strong community out there. Richard Heart’s populist persona is the brand. His outrageousness appeals to his crowd and thus has the potential to go viral in the next bull market.
On the other hand, detractors can’t stand the dude’s showing off. The coin has no utility and bitcoin holders’ blood boils when Richard makes statements about HEX being better than bitcoin.
To my mind, HEX cryptocurrency is very reminiscent of DeFi 2.0 coins like Olympus DAO, $TIME wonderland and so on that introduced high yields.
Whatever you do please beware. This is a high risk game. Hopefully this article has helped you to do your own research.