Richard Heart and the curious launch of Hex, Pulse, and PulseX
Like many dubious crypto leaders, Hex creator Richard Heart has amassed a cult of personality through outrageous videos and gaudy displays of wealth. In February, he bought the largest diamond in the world for $4.3 million in crypto. The four billion-year-old wonder was renamed the Hex.com diamond.
Heart keeps many secrets. Past known aliases include James Hart and J. Heart. He was born Richard James Schueler on October 9, 1979. He grew up in Pittsburgh.
Nowadays, he hides the location of his residence, refuses to answer questions regarding his net worth, if he controls Hex’s Origin or Flush addresses, and most importantly, how much Ethereum he received from the proceeds of the Hex launch.
During a recorded Twitter Spaces conversation, Heart was accused by former colleague-turned-critic, Tone Vays: “…he dumped all the Ethereum that people paid on day one to get his [Hex] coins.”
After an awkward moment of silence, Heart responded, “No comment, Tone. I got a lot of really cool stuff. I’m selling something for it, ain’t I?”
In another conversation with Eric Wall, Richard outlined a scheme even more explicitly. “Let’s pretend you launched a coin, and you raised money. And then you put that money into Ethereum. And then Ethereum went up 40X, and you dumped that s**t, and you had a f*****g stack of cash. I bet if you reinvested in your original coin, you could have actually net put more into that coin than you took out. Do you know what I’m saying?”
Wall responded, “No.”
Heart replied, “No? You don’t get it? OK. Well, I can’t say it any more clearer.”
Although Heart repeatedly glomars all public questions about his control of Hex’s origin or flush addresses, he’s rumored to be their ultimate beneficiary.
The origin address receives a copy of all token rewards minted by users upon maturity of their time stake. It receives half the penalties for early withdrawal; the other half goes into a payout pool. The address also receives a copy of bonuses. It currently holds over $11 million (268 million Hex).
The Flush address receives Hex tokens from a smart contract function involving late penalties. Users agree to a strict schedule when initiating a Hex stake – if they don’t end their stake on time, the Flush address can ultimately receive some of their penalty fees.
- The Flush address once held $6.5 million in Ethereum and has been drained of most of its receipts.
- An estimated 2,387,391 ether have been moved out from a suspected Flush address in a series of transactions that began on December 12, 2019 and ended on January 27, 2021.
- If Heart does control all assets in the Origin, Flush, and other Hex wallets listed above, Heart could control up to 88.19% of Hex’s total supply.
The illusory wealth of Heart’s Hex
If Heart controls Hex’s Origin Address as well as the sacrifice addresses for Heart’s PulseChain and PulseX, he could have once achieved billionaire status on paper.
One particular wallet, 0x12136e543b551ecdfdea9a0ed23ed0eff5505ee0, is widely rumored to belong to Heart. It held $400 million on February 17, 2021. Today, the wallet contains less than $10,000 and has routed crypto assets to dozens of wallets and exchanges including Binance, Huobi, OKEx, Bitfinex, Poloniex, Bithumb, and Deribit.
Hex is a crypto asset that Heart claims is a blockchain-based Certificate of Deposit (CD). Its name appropriates credibility from the popular belief that CDs are considered to be “one of the safest savings options.” However, as opposed to a real CD that a bank uses to collateralize mortgages or productive loans, Hex simply time-locks tokens in exchange for future token rewards.
Hex has a multi-billion dollar mark-to-market capitalization – but in crypto, wealth can be illusory. Unregulated, ostensibly decentralized exchanges (DEXs) permit anyone to create a token with an arbitrary supply, and list it for trading.
Here, a user can simply add a capriciously small amount of liquidity and transact a few times to set the price of any newly created asset. Because market capitalization is a simple multiplication of price by supply, it’s simple to create a high market cap token.
Along these lines, Heart’s Hex is very thinly traded with a high market cap exceeding $7 billion. Despite a market cap exceeding $8 billion, CoinMarketCap reports less than $10 million worth of Hex transactions occur in a typical day.
For comparison, Ethereum has a market cap of $200 billion and over $27 billion worth of Ethereum traded today.
January 6, 2020: An historic day for Hex and Heart
Hex had a 12-month launch phase. Early on, participants obtained Hex by sending Ethereum to a recurring daily auction called the Adoption Amplifier. Heart also set up a Hex giveaway to bitcoin holders at a rate of 10,000 Hex per bitcoin.
Many participants in the launch of Hex were disappointed by its topsy-turvy construction. Unlike most launches that reward early adopters, Hex rewarded latecomers with an even allocation of Hex by day. This counterintuitive structure penalized early adopters who crowded into Hex’s first day. Instead of a reward for being early, Hex penalized them with a lower proportion of Hex than they could have received for the same amount of money weeks later.
On the vast majority of his livestreams since, Heart mentions the steep return on investment for those who bought at Hex’s January 6, 2020 low. However, average transaction volume on that day was approximately $5,000. In contrast, many millions of dollars worth of Hex transacted during its all-time high in September 2021.
Stated another way, there was a vanishingly tiny opportunity to purchase Hex at its low, yet a massive opportunity to purchase Hex at its all-time high.
Another peculiarity: there were 36 outgoing transactions from Hex’s Adoption Amplifier on that date. Each transaction sent exactly 1,337 Ethereum (approximately $192,000 apiece at the time). In old hacker slang, 1337 means “elite.”
Crypto Weekly Review alleges that the controller(s) of those 36 wallets used these “elite” allocations to manipulate Hex’s spot price so that it matched the Adoption Amplifier’s price for Hex – an accusation that Protos has not yet been able to corroborate.
PulseChain and PulseX
In 2021, Heart created two ingenious methods for locking up large quantities of Hex’s supply: PulseChain and PulseX.
PulseChain is a slightly modified version of Ethereum; instead of ETH, its native asset is PLS. Coinciding with the creation of his blockchain, Heart raised $27 million for charity.
Heart is also creating an on-chain exchange, PulseX, that will operate on the PulseChain blockchain. PulseX will use its own token, PLX. Users sacrificed over $1 billion to participate in the launch.
In order to get financially involved in Heart’s two new projects, Heart asked users to “sacrifice” tokens of monetary value like Ethereum, stablecoins and, critically, Hex. Over 2,182,205,786 Hex are now locked inside sacrifice wallets for PulseX and, importantly, cannot be sold by their prior owners.
Combined, “sacrificers” to these two projects have locked up $11 billion worth of Hex’s notional supply.
Although stopping short of a guarantee, Heart has repeatedly told sacrificers that they will likely receive a commensurate airdrop of PLS and PLSX tokens — corresponding to their sacrifice amount — when these protocols launch their mainnets.
Alleged security likeness of the Hex offering
Bitcoiner Tone Vays once hosted a seven-hour discussion about Hex with Heart and two lawyers. According to attorney Jason Seibert’s analysis during this call, Heart’s offering of Hex probably passed the SEC’s Howey Test and was, in his non-binding opinion, an unregistered securities offering. Seibert has been an attorney for crypto defendants since 2014 when he served as Trendon Shavers’ civil defense counsel – known as the first bitcoin securities-fraud case.
Hex’s staking program advertises annual interest rates of approximately 37% to stakers – a seemingly security-like investment opportunity. However, Heart argues that because users stake and redeem token rewards themselves directly with Hex’s smart contract, there’s no promise of any return based on the efforts of others.
In his view, users can earn up to 38% extra Hex tokens annually by staking and interacting with Hex’s smart contract by themselves. To date, the SEC has not commented publicly on Heart nor Hex.
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