Elementary hexonomics

This article describes the supply properties of HEX token and HEX shares.

Distribution phase

HEX smart contract launched on December 2nd 2019. The first problem of any new cryptocurrency is the distribution of tokens to future users.

HEX opted for a similar mechanism that was previously successfully used for the distribution of EOS tokens. The so called Adoption Amplifier (AA) mechanism was set in such a way that users could mint themselves HEX tokens using ETH. The HEX/ETH ratio was set daily by participants in a smart contract driven collective auction. This essentially allowed everyone to mint tokens in a trustless manner.

Each day the contract allocated an amount of HEX that would be minted at the end of the day by each participant according to the share of their bid in the overall amount of ETH sent to the contract. Those that used a referral link got up to 32% more HEX.

For example, when the contract allocated 511.9 million HEX on day 33 (January 4th 2020), everyone who put a 1 ETH bid could mint themselves 1.841 million HEX (or 2.025 million when referred, or 2.430 millions when self-referred). At the same time, a copy of all bonuses, including increments of “We are all Satoshi” (WaaS) bonus, were minted into the Origin Address (OA), thus inflating the total supply by about 1.3B tokens daily, starting from zero to 480 billion tokens. This distribution method inhibited the hyperinflation from causing much damage, as the HEX/ETH ratio affected the market price consensus.

The last event of the distribution phase was the Big Pay Day (BPD) where roughly 30% of the total supply was distributed in the form of bonus interest to everyone who had stakes active on November 19th 2020.

By abit_Hex

Total HEX supply

The sum of all ever minted HEX is called the total HEX supply. It includes all circulating supply and all supply burnt in the staking process, but not also credited interest which was not minted yet.

After the launch and distribution phase ended successfully, the only source of new tokens are the stakes. Staking burns coins and endstaking mints them with interest. This interest is derived from total supply inflation, BPD and penalties. The total supply inflation is capped at 3.69% yearly. In practice it is always somewhat less than that, because the inflation is first credited daily to stakes and does not get included into the inflation basis (total supply) until minted, which inevitably occurs with a delay.

The total supply can thus only go up and is not capped.

Total HEX supply does not affect the market cap of HEX cryptocurrency. Its only practical impact is on the interest that stakers receive and the maximum theoretical amount of HEX shares that can be created.

Maximum theoretical growth of total HEX supply.

Circulating HEX supply

Circulating HEX supply is the sum of all liquid coins. When HEX is staked, it is burnt and therefore removed from circulating supply. This supply is counted in the market cap: circulating supply × HEX price. A large part of the circulating HEX supply is in the Origin Address (OA) and its associated addresses.

HEX monetary policy is in control of the staker class, which means the circulating supply can be inflationary or deflationary. Even though the circulating supply can go up or down, it is likely that over long enough time period it will trend up in some correlation with total supply.

Circulating supply (yellow) and staking daily volume (magenta) from hex.vision website.

HEX market cap

The market cap of any asset is simply its circulating supply multiplied with the price. HEX is no exception to this. However, a peculiarity of HEX is that the more HEX gets staked, the lower the market cap gets at the same price. This is because HEX tokens are burnt upon staking. Unlike just about any other cryptocurrency, the market cap of HEX can sometimes go down when the demand for its intended use case is high, as this means more tokens are burnt and the resulting decrease in circulating supply may be more significant than the price appreciation.

The reverse is also true. There can be an increase of the market cap when there is more endstaking than staking, even though the price may be decreasing.

Total HEX shares

When HEX is staked, it is burned and the contract allocates HEX shares to the stake. Shares are not tokenized, so that they are not transferable. They remain locked in the stake until destroyed using either the End Stake (ES) or Good Accounting (GA) contract functions. HEX shares are the most crucial part of HEX staking. Their amount locked in a stake determines how much of the daily payout is credited as interest.

The sum of all existing HEX shares on the blockchain is called total HEX shares. The total shares can go up or down on the short term and they are not capped, though a theoretical maximum exists.

Due to practical reasons, a trillion shares (1012) is called a tera-Share or T-Share.

Historical graph of total HEX shares from day 1 to 372. The spike around day 353 is from a huge increase in staking due to the BigPayDay. Data taken from go.hex.com contract frontend.

Max theoretical HEX shares

There is a theoretical maximum of shares that can be created at any given day. For example, today (December 8th 2020), there is 10.9 million T-Shares in total, the circulating HEX supply is 567 billion HEX, and the share price is 16292 HEX/T-Share. Therefore, the maximum amount of shares that could theoretically exist tomorrow is the existing shares plus the maximum amount that could be created by staking the entire circulating supply at the current share price with maxed out LongerPaysBetter (LPB) and BiggerPaysBetter (BPB) bonus shares (300% + 10%) :

Max theoretical HEX shares
= total HEX shares + [(LPB+BPB) × circulating HEX supply / share price]
= 10.9×106 T-Shares + (310% × 567×109 HEX / 16292 HEX/T-Share)
= 118.8 million T-Shares

The actual value of max theoretical HEX shares is essentially irrelevant, but its mathematical behavior is of crucial importance, as it virtually exerts pressure on total shares, acting as a virtual cap and driving deflation. Share price in the denominator is the most important element to this effect.

Share price

The share price only goes up when priced in HEX. This is because each time a staker ends a stake, the contract calculates the amount of shares the staker could create by restaking the entire return for the same time. If the return is so high that it could create a higher amount of shares, the contract calculates a new share price, such that restaking would give the same amount of shares.

Few stakes can achieve such amazing return to set a new share price, but the newly set share price is used for all new stakes. For this reason, the share price appreciates at a faster rate than the total HEX supply can keep up. This results in the maximum possible shares generally decreasing, though it can be variable on short term (for example, restaking longer creates more shares due to LPB).

This is in opposition to the total HEX supply always increasing. At some point, this deflationary pressure will result in the formation of a peak of total HEX shares, after which point they will start trending down. This second phase is known as total HEX shares deflation.

This graph from Graphex.rocks website shows the historic rise of the share rate from day 1 to day 372. Here, the share rate is the multiplier from the starting price on day 1: Share price = Share rate × 10000 HEX/T-Share (the term “share rate” is sometimes also used for the inverse value of share price). Note the big step up in share price on day 354 that occurred due to the huge ROI of stakes ending just after BigPayDay.
Historical comparison of T-Share cost in USD vs. HEX price in USD from Hexgraphs.com website.

Share market cap

The share price determines the cost of creating a stake of a specific yielding power. Consequently one can calculate the overall highest cost for the yielding power of the entire HEX contract by multiplying total shares with the cost of their creation. In analogy to the asset market cap, share market cap is not equivalent to the actual expense paid to create existing total shares, as not all shares were created at the current price and the equation does not include the cost discount from LPB and BPB bonus shares.

This value only has informational meaning, as it is has strong similarities to the overall hashing power in the bitcoin network. It gives an indication of the staker class power.

Inflation and deflation interplay

Due to the particular nature of the HEX contract, a user can freely decide on which side of the value transfer to position. The way the HEX blockchain certificate of deposit mechanism works is by the staker class generating HEX token scarcity in order to keep the price up and receiving the supply inflation as a reward. Meanwhile, the holders of liquid HEX suffer dilution from this same inflation. As a consequence, stakers virtually lend value to the holders, while holders virtually pay back the stakers trough supply inflation.

One can decide to be only partially staked and receive just enough interest to stay at net zero value loss, or to be staked more to receive additional value. This way the HEX contract allows to either be individually in an inflationary, neutral, or deflationary supply zone.

Summary

HEX tokens metricproperties
Total supply= circulating supply + staked supply

only goes up, capped at 3.69% annual inflation
Circulating supplyvariable

controlled by the staker class, capped by total supply
Staked supplyvariable

controlled by the staker class, capped by total supply
HEX market cap= circulating supply × HEX price

variable

HEX shares metricproperties
Max theoretical HEX shares= total shares + (310% × circulating supply / share price)

variable on short term, but deflationary on long term
Total sharesvariable on short term, deflationary on long term

controlled by the staker class, capped by max possible HEX shares
Share priceonly goes up

can increase upon minting tokens from a stake
Share market cap= total shares × share price

variable

.

By @Benzenoid

Disclaimer: None of the above is meant to be a financial advice. Never rely on a single source of information and do your own research before any investment. Don’t trust, verify!

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