The War On Shitcoins Episode 19: HEX. The war on shitcoins is a Crypto.IQ series that targets and shoots down cryptocurrencies that are not worth investing in either due to being scams, having serious design flaws, being centralized, or in general just being worthless copies of other cryptocurrencies. There are thousands of shitcoins that are detrimental for the crypto space, and Crypto.IQ intends to expose all of them. The crypto space needs an exorcism, and we are happy to provide it.
HEX is a cryptocurrency that launched near the beginning of December and was Founded by crypto influencer Richard Heart, who has over 50,000 followers on Twitter and over 8,000 people in his Telegram group.
As we will detail in this article, HEX is in violation of securities regulations, HEX uses tactics similar to pyramid schemes in order to proliferate, the millions of dollars being raised by HEX all go to Heart and his team, and HEX has a hidden centralization problem which enriches the developers while putting all other HEX users at risk.
HEX is likely in violation of Securities and Exchange Commission (SEC) regulations. All initial coin offerings (ICOs) in the United States must be registered with the SEC before launching, and to date, no ICOs have been approved by the SEC. HEX has raised over $5 million so far, and some of this is certainly from United States investors considering that HEX is doing nothing to block people from the United States. Therefore, the SEC can sue HEX for running an illegal ICO.
Also, Heart has been posting an abundance of misleading marketing material, such as the below Tweet.
The HEX website’s tagline is “HEX is designed to increase in value faster than anything else in history.” Heart also posted a video that is titled “HEX is the opportunity of a lifetime. Designed to do over 10,000X returns in under 2.5 years.” These are just a few examples. Over the past weeks and months, Heart and his team have posted an uncountable amount of misleading marketing statements.
Promising guaranteed returns to investors is considered fraud and is a common tactic used by pyramid and Ponzi schemes.
It gets worse. HEX uses another classic pyramid/Ponzi tactic, rewarding users a 20% bonus for referring someone. This incentivizes users to get their friends, family, and even strangers to sign up for HEX. Indeed, the catastrophic OneCoin and BitConnect scams depended on the power of referral bonuses to spread so far so fast.
Further, HEX uses all sorts of game theory to get people to invest, and then to ensure that people HODL their HEX long term. First off, anyone who has Bitcoin (BTC) can claim a certain amount of HEX, but the caveat is the amount of HEX that can be claimed decreases by 2% each day. This puts the pressure on Bitcoin (BTC) holders to claim HEX immediately.
The other way to get HEX is via the ‘Adoption Amplifier’ which is just a fancy term for HEX’s Ethereum (ETH) ICO address. The adoption amplifier puts pressure on people to invest every day by running a daily auction, where participants receive the percentage of HEX in the ‘pot’ equivalent to the Ethereum (ETH) they invested divided by total investments that day.
The pot and the daily auction resets every day and is filled with 1/350th of the remaining unclaimed HEX. This incentivizes people to invest each day since participants think that they have a shot at getting lots of HEX for a little money. This is essentially gambling, which is quite addictive for some people. Also, there is pressure for participants to play this game early on since long term the amount of HEX up for grabs will get smaller and smaller.
Apparently, this tactic has worked, with over 42,000 Ethereum (ETH) invested so far, which is worth over $5 million. A stats website shows that hundreds of Ethereum (ETH) worth tens of thousands of dollars are still being invested every day.
All of these funds are going directly to Richard Heart and his team. Indeed, there are no details on the HEX website about ICO funds going towards a development fund or Foundation. Therefore, it seems HEX has indeed been incredibly profitable — for Heart at least.
It gets much worse. HEX incentivizes users to hold for at least 353 days since on day 353 all users will receive a variety of significant bonuses. Also, in general, users who stake bigger amounts of HEX for longer periods of time receive significant bonuses.
Further, HEX users who withdrawal their coins before their stake matures are charged a significant fee. Even users who reach the stake’s maturity but forget to move the HEX out of staking will be charged a daily ‘maintenance fee,’ which seems absurd.
Thus, users are incentivized to HODL their HEX and never cash out and penalized if they do cash out. Right now, 82% of all HEX is being staked, meaning 82% of all HEX cannot be used for anything unless those users are willing to incur significant monetary penalties.
Simultaneously, Heart and the HEX dev team are receiving enormous amounts of free HEX via a centralized ‘origin address.’ Information about this origin address is on the HEX website but difficult to find, so right off the bat, it seems like the developers did not want people to know about it.
The origin address receives 50% of all HEX penalties, such as when a user cashes out their HEX before a stake matures. Also, the origin address receives an equivalent amount to any referral bonuses that HEX users receive, as well as the bonus for claiming HEX quickly, in addition to a duplicate amount of all the unclaimed HEX. This is causing the origin address to receive hundreds of millions of HEX per day.
Medium user Goldman Sats ran the numbers and figured out that no matter what happens the origin address will eventually contain 45% of all HEX. According to Goldman Sats, Heart initially claimed that he did not know who controls the origin address. Another more recent report says that Heart admitted the truth about the origin address and indicated that its funds have been spread across 10-12 addresses so far for staking purposes.
Thus, the origin address is receiving enormous amounts of funds, and these funds are being sent to different addresses to obfuscate the trail. Also, the origin address can stake the free HEX, accumulating massive amounts of staking profits while simultaneously suppressing the staking profits of everyone else on the network. Also, it seems that there is a specific bonus for staking over 150 million HEX, and maybe this bonus was designed for origin address funds.
Ultimately, Heart and the HEX team could dump this HEX at a time of their choosing and drain all of the liquidity out of the market, or just slowly dump HEX and steadily take liquidity out of the market. Therefore, the HEX market is highly centralized, and Heart is enriching himself at the expense of everyone else using HEX.
It seems odd and particularly greedy that the origin address was created in the first place since Heart and the HEX team easily raised over $5 million from the ICO. It seems like the origin address being revealed to the public is the straw that broke the camel’s back, with the value of HEX dropping at least 85% since launch according to CoinGecko, and one report claiming that HEX lost 99.3% of its value in 12 days.
Further, HEX has less than $5,000 of trading volume per day according to CoinMarketCap and CoinGecko, meaning that HEX has practically no liquidity and can only be traded in small amounts.
Therefore, the millions of dollars of Ethereum (ETH) invested in HEX are nearly a total loss at this point, and no one got rich quick with this scheme besides Heart and his team.
Zooming out and bringing things full circle, HEX uses pyramid/Ponzi scheme tactics in order to gain more users and utilizes game theory to pressure users to invest and HODL long term. It seems that the final part of the master plan is that the HEX developers can dump all of the origin address coins and take every dollar out of the order books, or they could slowly siphon off liquidity from the market.
To add insult to injury, Heart was claiming that HEX could stop crypto scams, by being more attractive than all of the other crypto scams, and therefore tying up the funds of investors who would typically fall for a crypto pyramid/Ponzi scheme.
This is incredibly brazen, considering that the existence of the origin address is pretty much proof that HEX was designed to be a scam from the beginning. Goldman Sats exposed the origin address issue to the public only a day after the above tweet.
Heart pours even more salt in the wound by claiming that HEX is better than Bitcoin (BTC), including claims that HEX has far more profit potential, is more secure since users HODL and stake instead of trying to profit by using exchanges, and that HEX’s network is superior to the Bitcoin (BTC) network, among handfuls of other misleading claims.
This is absurd and laughable, since HEX is basically a centralized pyramid scheme with practically no value, while Bitcoin (BTC) is the backbone of the entire crypto space. That being said, this is just another part of Heart’s misleading marketing tactics.
Crypto users should avoid HEX like the plague. It appears to be one of the worst shitcoins of the entire year. Also, this HEX debacle is a case example of how ‘crypto influencers’ are not necessarily reputable, and crypto users should always be skeptical of new projects no matter who is backing them.