We welcome 29 new subscribers to the Sporting Crypto Newsletter who have joined us over the last week!

Join 1,658 readers who are interested in exploring where Sports meets Crypto. If you're reading this and still haven't signed up, click the 'Subscribe' button below to join sports industry leaders and fans learning about Web3!

If you’re already subbed - thank you very much. Please be sure to share the newsletter with your friends and colleagues!

Intro Notes, Plugs & Amendments 🔌🔧

This edition of Sporting Crypto is brought to you by Momento Market - football’s auction house. More to be revealed soon but for now, join the waitlist.

I have to sometimes be careful to not make this newsletter too football centric, being the avid football enthusiast I am.

Many readers won’t know Barnsley FC — and why would you?They’re a fairly small football club in England that play in League 1, the third tier of the English pyramid.

They recently partnered with Hex.com, and the crypto partner lasted just 7 days.

But why?

🔌 We have sponsor slots available from September 12th onwards for Sporting Crypto. If you’d like to partner, reach out on Twitter or LinkedIn, or email me back at this address!

🔌 If you would like me to come to an event and speak about Sports & Crypto / NFTs, please reach out on the above platforms or reply to this email.

This Week’s Deep Dive: Barnsley FC Terminate Deal with Crypto Partner Hex.com

After unearthing vile homophobic social media posts from senior leadership of Hex.com — Barnsley FC have terminated its partnership with the crypto token.

Rightly so. 

The posts are disgusting and show how little due diligence was done in the first place by the English League 1 Football club.

But why did they partner with something that has been called a scam on several occasions?

What exactly is Hex?And who exactly is their eccentric founder Richard Heart?

Why do football clubs in particular make me want to give them free consultation on what not to do when it comes to crypto sponsorship — just so we don’t have to hear about another dubious crypto partner in the sport I love so much?

Hex 

Hex (HEX) is a token that is secured by the Ethereum blockchain.

In normal speak — all that means is that this is a token on the Ethereum blockchain.

It’s had a ~90% in value drop from a staggering market cap of ~$80 billion down to its current price point of ~ $10 billion.

The actual product this token or project offers is a ‘Certificate of Deposit’ or ‘CD’.

As per Investor.gov: 

So traditionally in financial services — this makes sense.

The banks lend your money, that you have promised to lock up for a specific yield (in the form of interest).

This allows a bank to say “we can guarantee to have X amount of cash on our balance sheet for Y amount of time”. 

They will then typically charge you a penalty charge should you withdraw before the lock up is finished. Thus, covering themselves financially somewhat whichever route you choose: early withdrawal or lock up.

The yield mentioned or interest you make comes from the borrower of that money. Fairly simple banking 101. 

Hex.com claim to be a CD.

A CD is safe, secure and regulated. 

Hex.com’s CD is a bit different, though…and I’ll explain why.

Hex.com don’t really have a product, really.

And sceptics reading will say “Well isn’t that all of crypto?”No, is the short answer.Uniswap is a decentralised crypto exchange, for example.

AAVE — a decentralised lending market is another example.

Their tokens are tied to the governance and/or functionality of the thing. It makes sense because there’s an actual functioning product that people use.

Hex have marketed heavily. Wrapping taxis, taking newspaper ads — all to get more investors to buy the HEX token.

“But surely that’s not the sole reason this token rose to have a market cap of $80bn, right Pet?”

Well, yes, you’re right — this isn’t the only reason.

To help ask answer that, we have to first ask the question — what is the reason for the HEX token?

All you can do with HEX tokens is hold them, or stake them.

Staking in this context, simply means you’re ‘locking up’ the token for future rewards; which is simply more HEX tokens. Kind of similar to the definition of a CD, right?

For example, I might stake my HEX tokens for a year for a promise of 10% of that total lock up after that year is up.

But why would you do this if there’s no actual use case for the token? That’s something I actually don’t know the answer to.

Staking in crypto has worked really well in a variety of ways. The Ethereum protocol allowed people to stake/lock up their tokens to help fund the ‘merge’ moving Ethereum from proof-of-work to proof-of-stake. Essentially, the lock up helped fund a complete change in their consensus protocol and the biggest technological overhaul a blockchain of this size has ever seen.

Staking or lock ups do have another function, though.

Staking shrinks the supply of tokens, in turn making the price less volatile, but also more likely to go up. Simple economics, right?

With HEX, the crazy returns promised (sometimes up to 40%) create a positive feedback loop in the sense that the more staking happening, the more the price rises (if demand doesn’t fall in line with falling supply) and thus perpetually creates rises…until the rises stop.

But when you promise ~40% returns in a year, it means that the tokens issued are then inflating the supply. Aka, if I have 100 HEX — if it’s 40% a year — I end up with 140 HEX after the year lock up.

Thus, the house of cards will inevitably fall at some point when either:

1. There is huge volatility in the token (particularly downward) that is larger than the promised lock up, creating actual losses to the person locking up their tokens. For example, if I see HEX is going to drop more than the 40% promised — I might choose to take the penalty of withdrawing.

2. The lock up cycle is completed and the supply is massively inflated.

The economics just don’t make sense, especially when you consider there’s no actual product here. That’s why

Alongside the crazy yields, Hex also has some lofty goals:

• Replace gold as a store of value

• Eliminate the need for credit cards and payments companies

• Replace centralized authorities with a trustless system that pays interest directly to stakeholders

I’m going to probably stick my neck out and say none of those things happening.

But Pet, Hex.com are audited both from a security perspective on their smart contracts but also their financials…

First of all — paying a developer to create smart contracts for you that are secure does not mean Hex is a good project. Getting someone to then ‘audit’ them to ensure they function — is also not indicative of how ‘good’ the project is.

CoinFabrik — who audited Hex — were asked ‘in particular ‘ to verify that longer staking or lock up periods make you more money. Which they did.

But that’s basically all that they did. There was no further evaluation of their financials. That is all that was 'audited.

Crazy, right?

Bear with me, because the craziness does not end there.

We haven’t even started to talk about Richard Heart…the founder of Hex.

Richard Heart

In 2002, Richard Heart (real name Richard J. Scheuler) violated Washington state’s anti-spam laws.

He was known as the ‘Spam King’ at one point.

Between 2005 and 2007, Richard was investigated by authorities in Panama for theft and extortion. His aliases were named in connection with a Panamanian criminal network.

Now he is a self presented thought leader in crypto.

But whilst Satoshi Nakamoto built Bitcoin in 2008, Richard tried his hand at anti-ageing remedies — volunteering for the Methuselah Foundation - who wanted to “make 90 the new 50”.

On RichardHeart.com — it’s claimed he has raised $27m for medical research, owns the largest cut diamond and owns $5m in watches.

He’s also created Pulsechain, which is a fork of Ethereum. A fork is basically copying and pasting an entire blockchain for a specific reason. Usually, this is because a disagreement has broken out between developers on how a blockchain should run or what it should focus on.

In this instance, I’m unsure why Richard and the PulseChain team have forked the Ethereum blockchain.

It’s likely, to try and generate new value through their new token and make some big holders of ETH a lot of money. When you fork a chain, you give holders of the token native to that chain an equivalent. If I forked Ethereum, and made PetChain and the tokens were ‘$PET’ — if you hold X% of the circulation of Ethereum, you would get X% of the circulation of $PET.

That seems pretty obvious to me to also be a cash grab.

So he’s clearly got a very interesting history.

Personally, if I was working at any football club, and I saw all of the above — partnering with the token that is founded by someone with that CV would scare me.

Why did Barnsley FC not see the red flags?

When asking industry friends in football — one of the answers was

But surely that isn’t true.

Surely there is *some* semblance of care in the sense that being sponsored by something that could evaporate into thin air at any point.

I have to be honest, I didn’t know much about Hex. I knew a fair bit about Richard Heart as he’s been a prominent figure in the scene for a long time.

I did two hours of research in total for this newsletter. 

Within literally 15 minutes I could tell that Hex was not appropriate as a partner for any football club.

Did working in and around crypto for the last 5 years help when making that assessment?

Yes, it probably did.

But I can’t help shaking the feeling that a lot of that is common sense, not crypto experience.

The red flags (plural) are there. 

How the Barnsley sponsorship/commercial team failed to see them, I have no idea.

This newsletter has been quite technical and deep in the sense that we’ve likely discussed Hex in more detail than most publications have to this date. But the rabbit hole it led me down meant I had to write some of this down on paper.

If anything, just to show how crazy it is that a professional football club partnered with them.

I always say that crypto gets a bad rep in sports, but especially football. Things like this are why it’s rightly so.

But what can football clubs do here to avoid repeat mistakes?

Put a framework together, and do it incredibly simply.

Ask very simple questions to try and create some semblance of a picture:

1. Who? - Who are the team behind the crypto project? Are they doxxed (not anonymous) and do they have a reputable history?

2. What? - What is it they are offering? Is this something that fans could lose money from?

3. Why? - Why does this project want to sponsor us?

4. Where? - Where are they based, and is decentralisation being used as a way to avoid accountability?

5. Worth it? - Is the money worth risking our reputation?

6. When? - is the money being paid across the length of the deal, or mostly upfront?

There’s either naivety or arrogance that has led to a lot of these types of deals happening.

I hope that it’s the former because the questions you need to ask are fairly simple in order to gauge whether or not you should be partnering with any company.

The fact that fan groups from Barnsley had to force the club’s hand is quite sad.

Clubs have to be hypersensitive when it comes to their fans.

More sports crypto stories & things to put your radar

• Mark Cuban is being sued after allegedly misleading investors by promoting Voyager Digital…

• Guillem Balague, the journalist and broadcaster, has launched his own NFTs. I don’t think there’s a shot in hell anyone is buying these. Sorry, Guillem.

• Barcelona have sold another 24.5% of Barca Studios to Orpheus Media. Read my thoughts about Barca Studios and selling chunks of their Web3 rights here.

• Arsenal have been given a second warning by the ASA for their promotion of Socios. 

Great reads, great tweeting and more general ‘stuff’ that could impact you

• I get the feeling that the next trend we see in Web3 is NFTs that link to physical objects through NFC chips. 

• Reddit have put its points system on chain. Things are definitely happening.

Thanks for reading the latest edition of the Sporting Crypto newsletter. I’m really happy to see so many people enjoying it and sharing it with their networks. If you enjoyed this, please tell your friends who might be interested - and share it on social :)

This newsletter is for informational purposes only and is not financial or business advice.These are my thoughts & opinions and do not represent the opinions of any other person, business or entity.