HEX: The Case Against

 

Introduction

HEX is a blockchain being launched by Richard Heart. It is purported to being trustless interest, a blockchain certificate of deposit. It's an ERC-20 token being run on the Ethereum blockchain.

People can obtain HEX for free if they possess the private keys to valid bitcoin addresses that held a balance at block #606227
by signing a message that looks something like this:

Claim_HEX_to_0x08a7aD00DAc20aAAeB0612Ef3b96b737fE742d4F

Otherwise, they will need to trade in some Ethereum by entering and exiting a lobby that opens daily for about a year (350 days).

The HEX contract can be viewed here. You can verify the contract address by checking Richard Heart's Twitter, YouTube, and Telegram handle:

0x2b591e99afe9f32eaa6214f7b7629768c40eeb39

The Adoption Amplifier

The main issue with HEX is the Adoption Amplifier, or the mechanism by which you can obtain HEX in the first year by sending Ethereum into a lobby function before exiting the lobby the next day. This lobby is inspired by EOS: essentially every day for a year, a pool of HEX will be available to grab by sending Ethereum into another pool. At the end of the day, your proportion of the Ethereum pool would be your share of the HEX pool.

The Ethereum initially sits at the contract address, but a public flush function can be called which will transfer the Ethereum to this flush address:

0xDEC9f2793e3c17cd26eeFb21C4762fA5128E0399

So, the Ethereum, which has monetary value, can be accessed by anyone who possesses the private keys to those addresses. I'm going to assume a black box with a label that Richard Heart can send transactions from the flush address. These addresses have already collected 28K Ethereum ($4M+ at this time), which is the main issue with this. Here is how EOS did over the year:

Richard obfuscates around who can access those addresses and what those funds would be used for: essentially we shouldn't expect anything from that Ethereum, it's none of our business. This framing of those addresses is an argument for why the token isn't a security.

While the Ethereum from the flush address hasn't been used yet, there is nothing in the contract that locks that Ethereum, and given that locking the Ethereum programmatically was an option that could have been taken, one can assume that this Ethereum will be put to use at some point before the Adoption Amplifier phase ends.

No one is forcing people to invest in such a project, other than people's greed of expecting monumental returns the way they typically do of blockchain projects, and the marketing around the project itself which makes it a compelling product to purchase.

Suffice it to say, this may or may not be an interesting project, but one probably shouldn't part with valuable Ethereum for a new token as an investment of sorts, since it is effectively a donation to those that possess the keys to those addresses.

Bitcoin Holders

An interesting mechanic built into the contract is that bitcoin holders who don't claim their free HEX will leak 2% of their claimable HEX every week to the pool being claimed by participants donating their Ethereum in the Adoption Amplifier.

In this sense, if you want to disincentivize people from sending Ethereum to the HEX lobby function and you are a Bitcoin holder, you may want to claim your HEX. Unfortunately, a lot of the total bitcoin at the snapshot block isn't actually claimable, so a good amount of HEX will still go to the Adoption Amplifier lobby over the year. Instructions on how to free claim this HEX are given later in this post.

Origin Address

Another potential issue with this project is that there is an origin address that ends up accumulating a lot of the total HEX over the course of the project. At a high level, there are various bonuses that participants can get based on a complex set of interacting variables, but at the end of the day, an origin address gets a copy of those bonuses. Based on how the system works, this origin address can actually increase its percentage of total HEX supply over time. As with the flush address, one can assume a black box with Richard having access to this address. Here is the origin address, it has more than 50M HEX already:

0x9A6a414D6F3497c05E3b1De90520765fA1E07c03

Referral

Users can get bonus HEX by referring others. While referral programs have their uses, if HEX has monetary value, random bad actors can try to get others to invest heavily into this project via the Adoption Amplifier or via exchanges so that they can get a bonus of the HEX which they could then sell for a profit.

How To Help Those Who May Lose Money

Based on my understanding of the mechanics, I believe to maximize the chance that people do not send Ethereum into the Adoption Amplifier in return for HEX, you need to maximally decrease the amount of HEX that is available on offer for Ethereum. This can be done by free claiming any HEX that you can. The steps on how to do this are listed below, and are secure in that your private keys to your Bitcoin are not and can not be exposed.

Step 1: Install Metamask
a - Go to the Metamask website.
b - Add the metamask extension to your browser.
c - Click through the default settings.
d - If you aren't concerned about your HEX, stick to a software wallet.
e - (Optional) Feel free to connect your hardware wallet to Metamask.

Step 2: Go to the HEX Portal via a referral link

Step 3: In the claim tool, enter your Bitcoin address with a balance (can do this for multiple addresses).

Step 4: Sign the message given to you by the tool (Claim_HEX_to_<Ethereum-Address>), where <Ethereum-Address> is the address on your Metamask wallet.

Step 5: Copy the signed message back into the tool and claim.

Step 6: Choose an auto-staking length of 350 days that is the smallest possible (you will get 'Big Pay Day' bonus by now)

Granted, while you certainly won't be able to prevent people from sending their Ethereum into the Adoption Amplifier, this could at least help the situation. Another mechanism by which you could disincentivize the purchasing of HEX is to decrease the monetary value of HEX, which can be done by increasing the total supply of HEX. In order to do this, you can first make sure you are following a referral link when interacting with the HEX contract, as that gives bonus HEX to both parties, increasing the total supply, thereby decreasing the value per HEX. You can open this link to have an active referral link on the HEX contract when using the wallet.

Now, it would be nice to dump all the HEX on the market, further lowering the price, hopefully pushing people to stay off the Adoption Amplifier. Unfortunately, 90% of the free claimed HEX has to be auto-staked for a minimum of 350 days, so we won't be able to dump right away. However, by staking our free claimed coins, we will inherit a bunch of extra HEX on 'Big Pay Day', an event which occurs at the end of the first year where a one time exceptionally large bonus is distributed to stakers. We won't be able to dump HEX right away, but we can dump a lot more HEX about a year later. Of course, if the project dies long before that, it won't be necessary.

Conclusion

While HEX certainly has some interesting mechanics going for it which could make it an intriguing experiment, it certainly doesn't seem like a good idea to purchase Ethereum to then purchase HEX by bidding on the Adoption Amplifier. A black box with Richard's name on it gets both EOS and ZCash style founder rewards, on top of some referral bonuses.

Since the Adoption Amplifier is the main concern with this project, people squandering their savings by purchasing Ethereum to then purchase HEX, you can participate with the HEX project in a way that minimizes this possibility.

This can be done by free claiming your HEX via the website that you access from a referral link, after which you stake your HEX beyond day 353, before dumping it to maximally reduce its price, thereby keeping potential victims away from the Adoption Amplifier.

If you feel this information about HEX is useful, and this plan around incentivizing people against sending Ethereum to the Adoption Amplifier a good one, please consider sharing and spreading this post.