Crypto Market Commentary 

19 December 2019

Doc's Daily Commentary


The 12/11 ReadySetLive session with Doc is listed below.

Mind Of Mav

Are Scams Choking The Crypto Market? (Part 2)

Yesterday we discussed Plustoken as the new Chinese Bitconnect and how it’s siphoning away 2 Billion in value from the BTC network, in addition to the market panic it caused.

Today we’ll discuss another weed choking the progress of decentralized networks: HEX.

What is HEX?

It’s an ERC20 token developed by early Bitcoin adopter Richard Heart, and according to project’s website, HEX tokens are essentially time deposits made over the Ethereum network.

Ok, what is time deposit then?

According to Investopedia:

“A time deposit is an interest-bearing bank deposit account that has a specified date of maturity, such as a certificate of deposit (CD).

The deposited funds must remain in the account for the fixed term to receive the stated interest rate. Time deposits are an alternative to the standard savings account, and will usually pay a higher rate of interest.”

Essentially, you lock up your HEX for a fixed period (a minimum of about one year) to receive a share of the remaining tokens in the pool.

How to get HEX?

  1. Hold Bitcoin prior to the Bitcoin blockchain snapshot, taken place Monday December 2 2019. Then claim it on project’s website.
  2. Send ETH to the “adoption amplifier” – a smart contract that converts ETH to HEX on a daily basis.
  3. Buy on exchange.

In some sense, HEX resembles schemes like BitConnect and ETHConnect, where established coins are deposited, and another type of asset is issued.

And the interests are huge, far outpacing bank deposits.

The project’s hype page encourages users to hand in “cheap ETH” for an asset where “the price can only go up”. However, nothing ensures the actual price of HEX, and the scheme remains extremely risky.

Critics point out that Heart, as the alleged owner of HEX’s so-called “origin address,” will potentially control around 45% of the entire HEX supply just one year after the launch. This will be achieved by claiming a constant stream of HEX tokens from various types of transactions, while Heart will also keep the ETH from purchases.

Richard will likely make over $100 million in ETH and control 45% of all HEX after the first year. Unlike in Bitcoin where the high initial inflation rate quickly diluted Satoshi and other early adopters, HEX will only have at most a 3.69% annual inflation rate once the initial launch phase ends, so Richard’s stake will never be diluted. In fact, with the “Bigger Pays Better” bonus that pays large holders an additional 10% on their stake, his share of HEX will only increase over time.

While all of the bonuses and high interest rates are the carrots designed to get you to join HEX and stake your tokens, there are two penalties that function as sizable sticks (and why this will never take off other than just as a get-rich-quick-scheme for the founder and the early whales).

The first is that stakes cannot be ended prematurely without incurring a penalty equivalent to half the profit you would have made from staking for the entire period (this can even erode your capital).

The second is if you leave your HEX unstaked — you forget about it, you go on holiday and can’t access them, you get hit by a bus — another penalty mechanism kicks in and you lose your HEX gradually.

If you casually look at HEX, you might think that all of this penalized HEX goes to stakers, but in reality half of it is going to Richard’s Origin Address, while the other half is divided amongst the pool of every other staked participant — a pool that is constantly being diluted

But remember: Richard not only possesses the Origin Address but will also comprise at least 45% of all the HEX in the staking pool after the first year. Why this is terrible and shows more red flags than a communist party parade is that if someone ends their stake early and is penalized 1 million HEX, Richard receives 775,000 HEX himself, leaving only 225,000 coins to be divided amongst the thousands of other stakers.

Here’s the kicker:

Unlike the signup and staking bonuses for HEX which Richard loves to tout as proving this isn’t a scam — which expire after the initial launch phase — the penalties are a permanent part of the HEX smart contract.

They will never expire, enriching Richard in perpetuity, sucking all the value away from you and accruing it to Richard himself.

On Reddit, one user criticized the move by, saying, “Judging from the voice of the BCH supporters, I think listing HEX is going to be a huge hit on’s reputation in the community. Please listen to the community and not dig this hole. It is not worth it.” On Twitter, one user wrote, “This is incredibly misguided.”

Even in a sea of ethically dubious projects, HEX stands out as being the most egregious, though perhaps the most clever. Not only will Richard control close to half of all HEX after the first year, but it is the first token I have seen to have its founder’s perpetual self-enrichment baked into the protocol.

What makes HEX so effective is that it doesn’t fit neatly into any category of scam. It’s not quite a pyramid, a Ponzi or a multi-level marketing scheme, though it certainly has elements of all. It’s something entirely new, which allows it to pass through the internal cognitive firewall most people have that they use to determine whether or not they are being conned.

Let’s look at statistics on Hex:

Social volume:

Quite a spike indeed. The first top, on December 2, is a snapshot date for HEX ‘airdrop’.

Social context:

Picture says everything it needs to by itself.

HEX holders distribution:

Amount of HEX holders in increasing on almost any levels. Except ones having from 1K to 10K HEX mainly, they are exiting.

From that, what I hope will occur is a more bottom-up emergence of norms around how we treat scams, and those that deal in them. HEX could ultimately be a value by serving as a learning example for this industry — the thing everyone can agree is a scam, and converge around, limiting the fallout.

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