I’m staking HEX crypto to find out if it’s a legitimate project or a Ponzi Scheme.
Earlier this year, I discovered a cryptocurrency called HEX, an ERC20 token launched by Richard Heart in December 2019.
I was intrigued by its claim of being the “First Blockchain Certificate of Deposit” with average staking rewards of “40% a year“.
Having invested earlier this year, I believe that I can shed some light on the legitimacy of this project.
Thus, this article will try to answer several important questions:
- What is HEX?
- How does it work?
- Is it a scam?
Let’s get started.
What is DeFi?
If you’re interested in crypto, you’ve probably heard about “Decentralized Finance” (DeFi).
DeFi describes a “financial system that operates without the need for traditional, centralized intermediaries“.
This means that you don’t need a third party – such as a bank – to facilitate transactions and services between parties.
HEX is a project that is fully part of this novel financial ecosystem.
What is a Certificate of Deposit?
HEX claims to be the “First Blockchain Certificate of Deposit” and promises investors staking rewards of on “average 40% interest a year“.
40% returns is a bold claim but is that really how much the average investor stands to gain?
First, let’s explain how Certificates of Deposit work.
In traditional finance, a Certificate of Deposit (CD) is an investment tool managed by banks.
It is a financial product that provides an interest rate premium in exchange for the customer agreeing to leave a lump-sum deposit untouched for a predetermined period of time. Typically, investor buy CDs for short periods ranging from just a few months to several years.
CDs are appealing because they offer higher interest rates than the best savings and money market accounts.
In addition, they are safer and more conservative investments than stock and bonds because the return on investment is guaranteed and non-volatile.
HEX is a Decentralized Certificate of Deposit
HEX is applying the concept of CDs to DeFi.
Instread of having a bank manage your CD, HEX’s smart contract will do it for cheaper – and offer better rewards.
Investors are invited to purchase HEX and “stake” it – locking it away without being able to access it – for a period ranging from 1 to 5,555 days.
By staking your HEX, you gain interest on your deposit every single day.
HEX’s average APY is 40%. In comparison, a bank’s average APY for most CDs is lower than 2%.
Richard Heart, HEX’s charismatic and eccentric founder, claims that “HEX is special“.
- It is the first Blockchain CD.
- It is one of the best performing assets of the past few years.
- HEX removes the middlemen: the investor deals directly with a smart contract.
- HEX has low inflation.
- Staking rewards are significant.
Well, that’s the HEX elevator pitch: stake and earn big.
How true are these claims?
I decided to find out for myself.
My Experience Staking HEX
In life, the best way to understand something is to try it. This is especially true with cryptocurrency investing.
On January 15th, 2021, I swapped 0.08 ETH – worth about $100 at the time – for 10,000 HEX.
Since I didn’t know much about staking, I simply held the coin in my wallet.
Initially, I was underwhelmed by the coin’s performance.
The price stagnated for several months, going from $0.01 in January to $0.015 late April.
While this represented a 50% return, the crypto market’s craziness have distorted our perception of what constitute “good” gains.
Seeing the “lackluster” returns, I decided to stake my coins to generate APY.
At first, I was tempted to stake my coins for 5,555 days (15 years!) but, still unsure whether or not HEX was a ponzi scheme, I decided to opt for a more reasonable time frame.
Thus, on April 21st, I staked my 10,006 HEX for an initial period of 500 days.
This means that my HEX was locked away in a digital, decentralized CD for a period of 16 months.
At writing, I have 12 months left on this stake.
What is My Expected
Return on Investment?
In terms of pure staking rewards, I will gain 2,000 HEX. At the end of my staking period, I will cash out 12,000 HEX.
This represents a staking return of 20% for a CD of roughly 18 months.
While it’s far from the 40% advertised on HEX’s homepage, it’s not bad at all for a term deposit.
In fact, I don’t know a single bank that can match this return on investment.
However, we must also take into consideration potential capital gains.
And that’s where things get interesting.
Since I first staked my coins in April, the price of HEX has SKYROCKETED.
In January, I purchased 10K HEX coins for $100. My cost basis is $0.01 per coin.
At writing, HEX is trading for $0.17 per coin.
This represents an incredible 1,600% ROI in just over 6 months.
So the 2,000 extra HEX I’m earning as interest on my stake represent a very nice bonus on top of this incredible capital gain.
Obviously, there’s no guarantee the price will continue climbing.
Nevertheless, my initial investment of $100 is currently worth $2,040.
That’s a total paper return of 1940%.
Not too shabby.
The logical follow-up question is HOW can HEX deliver these double-digit interest payments?
Is HEX a Ponzi Scheme?
HEX is a controversial crypto.
On the surface, it has all the characteristics of a classic Ponzi Scheme.
Clearly, you’d have to be insane to send your hard-earned money to an eccentric founder who is promising insane returns.
Considering that my HEX is still locked away for 12 months, this fear is always in the back of my mind.
Thankfully, I’ve only risked $100, but I know that some people have invested tens of thousands of dollars.
For now, everything is going well and I have reasons to believe that HEX is legitimate.
Nevertheless, it’s important to understand the technical aspects of the project to determine whether it is in fact a Ponzi.
The project’s full technical explanation can be found on its website.
Here’s a quick breakdown.
HEX allows users to stake their coins in exchange for a share of the issuance of new HEX coins.
In simpler terms, stakers are paid interest on their deposit with the new coins issued in circulation.
Furthermore HEX contains features designed to stimulate good behavior and discourage “bad” behavior. These incentives encourage price appreciation and disincentivize massive sellofs.
How does this work?
The HEX smart contract penalizes users who terminate their stake early. In some cases, users who terminate their stakes well before the maturity date can actually lose all of their invested capital.
Clearly, HEX is designed for long-term investing – not for speculatIon and scalping.
Conversely, the coin’s smart contract rewards users who stake large amounts of HEX for long periods of time.
Indeed, interest payments range from 3.69% to 369% depending on how much user stakes and for how long.
Staking rewards are paid out in HEX so your ROI depends entirely on HEX’s market price.
If the price of HEX had crashed, investors would have valid grievances but so far, the price has increased by more than 2000%.
Thus, the project is working well and delivering substantial returns to investors.
In sum, HEX is a form of yield faming:
- Buy HEX.
- Lock up HEX.
- Earn HEX.
Once you take the time to analyze it, you’ll realize that HEX is a simple project.
Iit’s just a way of generating passive income.
Over 200,000 wallets hold HEX and the coin’s popularity is rising every week.
So why the controversy?
Critics point to the “scammy” tactics used to promote the coin.
In truth, it’ simply marketing to promote the coin and attract interest.
If you look beyond that and study the fundamentals, you’ll find out that HEX is simply a smart contract that locks funds and pays interest.
It’s a digital, decentralized Certificate of Deposit.
How Can You Buy HEX?
HEX is a cryptocurrency based on the Ethereum blockchain.
This means that you need to buy ETH and then swap it for HEX.
Here’s the procedure:
- Go to Metamask.io and install the Metamask wallet on your browser.
- Buy Ethereum on Metamask via the Wyre or Coinswitch buy button (you can also transfer ETH to your Metamask account from Binance of other platforms).
- Swap ETH for HEX (don’t forget to leave some ETH to cover the gas fees…).
- Validate the transaction and voila! You are now a HEX holder.
However, since HEX is designed to be a digital CD, there is no point in just holding it.
You need to stake it to reap the rewards.
How to Stake HEX
Staking HEX is very easy.
Once you’ve purchased some, simply go to HEX’s website and connect your Metamask wallet.
Then, enter the amount of HEX you wish to stake and for how long.
On the right hand side, the “Stake Bonuses” box will show you the amount of HEX you will receive as interest.
You’ll quickly notice that staking larger amounts for longer periods of time yields more attractive returns.
Once you’re satisfied with the conditions, click STAKE to lock your funds and start earning.
It’s really that simple.