Fair warning: This is going to be a lengthy analysis, but I promise the pay-off is worth it.

I have seen several articles that call HEX a Ponzi or Pyramid Scheme, both of which it isn’t. It has many features of these, but is unique in that it has so many moving parts, and complexities that these have helped to mask just how unethical a project it is. While it’s creator, Richard Heart, promotes the token as being “designed to increase in value faster than anything else in history”, and “do over 10,000x returns in under 2.5 years”, a deeper analysis shows HEX was designed for one thing only: to enrich Richard Heart himself, at the expense of every other participant. 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.

HEX is currently at the beginning of its year-long initial launch phase, after which virtually all of the HEX that will ever exist will have been distributed. During this period participants can obtain HEX in two ways: they can purchase HEX by sending their Ethereum to something called the “Adoption Amplifier”, which functions as a recurring daily auction, or they can claim HEX for free by holding Bitcoin at a rate of 10,000 HEX per BTC.

When it comes to the Adoption Amplifier, Richard is careful to avoid saying that you are purchasing HEX for Ethereum. As he terms it, you are “donating” your Ethereum which is then being “transformed” into HEX. To cut through the confusion this language might cause, what is actually happening is that the ETH is not really being “transformed” in any meaningful sense. It still exists, it just doesn’t belong to you anymore, it belongs to Richard. What you have instead is some token that Richard created, and his promise that it will make you massively wealthy. Within the first 24 hours of launch over $3 million in Ethereum has already been sent to the Adoption Amplifier. And given that this auction resets everyday for the first 352 days, it seems likely that Richard will make well in excess of $100 million in Ethereum alone.

In addition to the Ethereum he receives through the Adoption Amplifier, Richard designed HEX to give himself ownership of almost half of the coins through something called “The Origin Address”. If you go to Hex’s website, however, you will not find any mention of this. Not on the home page or in the FAQ section. I encourage you to do a keyword search to test this for yourself. What you will see are a dizzying list of bonuses you can earn as an early staker of HEX, and promises of massive future returns, but no mention of the Origin Address, its implications, or the fact that Richard owns it.

To even discover it exists you would need to go to hex.win (Richard’s official Hex Website), click on the tab labelled “Tech Specs”, and then look under the “Code” subheading and click on the hyperlink “Advanced analysis of how HEX works”. That will then open a 22 page Google Doc entitled “HEX Contract in Layman’s Terms”. And even if you did all of that, you would still need to read up to the bottom of page 14 of that document to find this:

And even if you were a prospective HEX investor who somehow did all of these steps and came across this, would it make sense to you? Even the name “Origin Address” sounds benign and boring. Perhaps if it was called the “Richard Gives Himself Almost Half Of All HEX” Address it would garner more attention.

While it’s impossible to know how much HEX Richard will control at the end of the initial launch phase, or even how much HEX there will be in total, by receiving a copy of all bonus payments the Origin Address should hold ~45% of all HEX regardless of how things play out. If more Bitcoin holders free claim, the Origin Address will receive more ‘Speed Claim’ and ‘Referral’ bonuses on the front end, as well as more ‘Critical Mass/Virality’ bonuses at the end of the launch phase. If fewer Bitcoin holders claim, the Origin Address will receive more “We Are All Satoshi” bonuses that distributes all the unclaimed HEX to stakers.

If this sounds confusing and convoluted, it is designed to be. All the complexity and game theory serves not only to hook people in, but to disguise the full extent of Richard’s self-enrichment. In this sense, HEX could not be a more appropriate name. It works exactly like an elaborate magic trick: where the myriad of cleverly-named bonuses, high interest, and addictive game theory serve as mesmerizing misdirection. You end up looking where Richard wants you to look, and you miss reading the bottom of page 14 of a hidden Google Doc that reveals how HEX is a rigged game.

When Richard has been pressed on information about the Origin Address, he goes to lengths to stress that he doesn’t own it, and he doesn’t know who WILL own it. Listening to him describe it, you could wake up tomorrow to an unsolicited letter telling you YOU are the owner of the Hex Origin Address. This is a lie. Richard designed Hex, and the entity receiving both the Ethereum from the Adoption Amplifier and the HEX from the Origin Address is either himself or an entity of his choosing, where he retains control. If you believe that Richard somehow created HEX with this much self-enrichment baked in, only to then give control of the Origin Address to someone else, you are likely beyond the help of this article.

It is worth mentioning that there is an added irony to Richard implementing what amounts to a hidden 45% founder’s tax on HEX’s total supply. Over the years he has been a vocal critic of projects like ZCash that employ a far more transparent founder’s tax to fund development, viewing them as a disqualifying factor for investment.

It is more staggering still when you consider how Richard presents the existence of Bitcoin whales as an existential threat:

And markets HEX as fixing this problem, and even being more egalitarian, by getting rid of the whales in Bitcoin, and redistributing their coins to smaller stakers:

In reality, though, Richard has designed an ocean where he is the only whale, far larger than any other whale in any other project. The lone, unkillable Moby Dick of HEX.

Richard Drinks Your Milkshake:

So far we’ve established that 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.

There is an additional benefit the Origin Address receives, though, that may be even more significant than the benefit Richard receives from allotting himself 45% of the entire HEX supply. As the holder of the Origin Address, Richard gets paid half of all HEX reclaimed by penalties.

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. 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 start bleeding out as your HEX is gradually drained.

If you’ve only perused the Hex website, 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. 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. So say 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.

Unlike the bonuses in HEX, 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.

If Richard stakes all of his coins, there is seemingly no upper limit to how much HEX he could control within the first few years of the project. The more frightening prospect, though, is considering what will happen when Richard wants to cash out.

While he could time his stakes to have over a billion HEX maturing every day to dump on the market, Richard could also “Emergency Unstake” his coins at any time. Since he gets paid half of all penalties, he can break his stake to sell, and only pay half the penalty of everyone else in the network. Not only that, but when others see the price falling from Richard’s selling, and Emergency Unstake their own coins, to get out while they still can, half of their penalized HEX is funneled directly to Richard’s Origin Address, re-inflating the bags of the very guy who dumped on them and crashed the price.

Richard could even dump all his HEX, and abandon project, and his Origin Address would still gradually refill over time with everyone else’s penalized HEX: a zombie whale, back from the dead.

Even if you trust Richard and don’t believe he will do any of this, it illustrates the power Richard has, demolishing Hex’s already broken game theory. By participating in HEX, you are not only enriching and enabling Richard Heart, but you are putting yourself completely at his mercy. He has created a game, given himself most of the chips and made it so that the rules will always be in his favor. It is a game you cannot win. Even though it might seem like you can, and Richard will tell you to “stake it ’til you make it”. You can’t. If you purchase HEX, you lose financially. If you free claim HEX with Bitcoin, you lose integrity because you are sanctioning a charlatan.

“This Is Not The Scam You Are Looking For”

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.

Richard is aware of how HEX looks, and especially how he’s marketing it, so has taken to saying “Hey, I know that my token might look and quack like a duck, but I promise you it is NOT a duck. Sure, I am using the tactics that scams use, AND I’m enriching myself in the same manner as anyone running a scam would, AND I have baked my continual self-enrichment into the protocol of my token, but I promise you this IS a legitimate project and I AM a respected member of the crypto community.”

HEX is such an egregious scam that at times it seems like surreal performance art, or the world’s most lucrative troll. And one day I’m sure it will become a humorous story we tell our kids from the crazy days of crypto (“So, a long time ago there was this guy on twitter who wore a magician’s top hat and created his own cryptocurrency called HEX, and he secretly gave himself half of it…”).

It might even be funny now, if not for the tragedy that so many are falling for it.

The Scam To End All Scams

Sadly, very few people who are actually vulnerable to being HEXed are likely to read this article, no matter how widely it gets shared.

Richard said it best himself in a particularly taunting tweet from two days after HEX’s launch:

While I am entirely against goverment intervention here, and shudder at the tweets tagging the the SEC in conversations about HEX, I would urge everyone — especially the more prominent “crypto” figures — to speak out.

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 schelling point for this industry — the thing everyone can agree is a scam, and converge around, limiting the fallout.