At the time of this writing, SafeMoon has not made any officials available for comment.
In the 60-some days that SafeMoon (CCC:SAFEMOON-USD) has existed, it has seen a nearly 3,000% price increase. Many of those early SafeMoon investors are holding on to their tokens as they eye that rocket to the moon, and their portfolios are being bolstered in the meantime.
But with the model SafeMoon presents, and the lack of clarity around the project, it has drawn some criticism. Crypto influencers, like Lark Davis and War on Rugs, have warned investors multiple times about the token’s reward structure and the lack of details regarding its liquidity pool. “Just because you make money off of a Ponzi does not change the fact that it’s a Ponzi,” Davis says of SafeMoon.
On April 19, the 1-month old cryptocurrency became a trending topic on Twitter. It popped up seemingly out of nowhere. Investors don’t seem to mind its mysterious development background, they just care that the token has been going up. What’s behind this token? And what is causing crypto influencers to denounce it as a scam?
We want our readers to make wise decisions, and to be informed about the stocks and cryptos we cover. Many of our readers are interested in SafeMoon; after all, it is the most-visited crypto page on CoinMarketCap. Let’s dive into what we currently know about SafeMoon.
SafeMoon Crypto: What Is It? How Does It Work?
SafeMoon launched on March 8. It is a token of the Binance (CCC:BNB-USD) Smart Chain, and was released through a fair launch. This means it was a publicly announced launch with no private pre-sale. Its founders conducted the initial launch on DxSale.
According to SafeMoon, the goal was for this launch to be as fair as possible for users. To hit that “goal,” all tokens in the dev wallet were burned. Burning a crypto is just like burning physical currency; it is destroyed and removed from circulation, lowering the total supply and slightly inflating remaining token prices.
SafeMoon’s developers launched the coin with 1 quadrillion tokens. Of that 1 quadrillion, 223 trillion of the tokens were burned prior to launch. This means that the launch saw the public release of 777 trillion SafeMoon, with none owned by developers prior to release. For reference, Ripple’s (CCC:XRP-USD) XRP coin has a total supply of just under 100 billion. Cardano’s (CCC:ADA-USD) ADA token has a total supply of 45 billion.
Based on the SafeMoon white paper, developers have a specific plan for the token.
Essentially, SafeMoon’s model rewards those who hold onto their tokens, while punishing those who sell. When one sells SafeMoon tokens, they must pay a 10% fee. According to the developers, 5% of that fee gets redistributed to remaining holders as a reward. The other 5% gets locked in a liquidity pool.
The promise of SafeMoon is in putting investors on a rocket ship, and getting them rich quickly. “That’s my retirement savings,” wrote one Twitter user about his SafeMoon stake. Future projects, things listed on the company’s roadmap like the SafeMoon wallet, SafeMoon exchange, and SafeMoon games, are an afterthought at the moment. And in looking at the SafeMoon protocol, one can see that the programming currently lacks the foundation for these developments.
The way SafeMoon seeks to create wealth is by reducing supply so that demand for holders’ tokens goes up. Punishing sellers and burning the tokens while rewarding holders with fatter wallets is a way to reduce supply while increasing demand. With the company reporting 1.4 million holders in just two months, it’s easy to see that there’s demand. And by burning tokens, SafeMoon can drive the price up in the most logical way possible. In fact, the company reports that as of April 27, it has burned 41% of the total SafeMoon supply.
Why Isn’t the Liquidity Pool Curbing Volatility?
One of the cornerstones of SafeMoon is its inclusion of an automatic liquidity pool in its protocol. Liquidity pools have a two-fold purpose. First, they keep a crypto’s value from dropping significantly in the event of a selloff. Secondly, they keep enough liquidity on hand to ensure buyers access to tokens on decentralized exchanges. The tokens are locked into the pool, to ensure the liquidity while also creating the price floor. CEO John Karony has tweeted that the SafeMoon pool contains around a quarter of a billion dollars worth of tokens.
The automatic aspect of the liquidity pool, according to the white paper, is that the pool automatically takes tokens from sellers and buyers. Half of the 10% seller fee is dumped into the pool upon transaction, hence the name. The developers control the pool, and while it is locked right now, investors don’t in fact know how the funds are secured.
As for what the liquidity pool’s future uses are, investors are unsure. SafeMoon CEO John Karony has stated that the liquidity pool is for “emergency purposes.” He mentions other potential uses like seeding for new exchanges that accept SafeMoon, or funding for future products, which have yet to be detailed. Crypto YouTuber James Mayo speculates in his SafeMoon video that the pool could likely be burned.
Despite the liquidity pool, investors are seeing some unusual behavior with liquidity and price.
The liquidity of SafeMoon is depleting, thanks to a rapidly burning supply. Trading volume is in turn going down. Investors are complaining of liquidity-related errors on PancakeSwap (CCC:CAKE-USD), the most popular exchange for trading SafeMoon. But, prices are still deflating. In fact, the token has lost 20% of its value on three consecutive days this week. SafeMoon is currently trading at $0.00000516, 63% below the all-time high of $0.000014 that it hit on April 20.
Consulting the white paper, this does not all add up. Under the manual burn model of SafeMoon, the price should be steadily increasing as supply drops. However, this model only works with steady interest. Any sort of drop in investor interest can lead to downward swings for the token’s value. That’s why the SafeMoon Twitter account, the mouthpiece of the company, is largely focused on generating new buyers.
Twitter: The Center of the SafeMoon Universe
Although SafeMoon has been quickly growing since its March 8 launch, things really started to pick up on April 19. Ahead of #DogeDay, the eponymous celebration for Dogecoin (CCC:DOGE-USD), SafeMoon began trending on Twitter. The next two days saw the SafeMoon account gain 110,000 followers, and led many to wonder if it was taking Dogecoin’s place.
And now, SafeMoon continues to amass its Twitter following. After creating its account on March 1, it is approaching 450,000 followers. Karony’s personal account, in many ways an extension of @SafeMoon, has over 120,000 followers.
Although Twitter has helped bring SafeMoon to the masses, its social media strategy rubs some investors the wrong way. Some investors have complained about the focus on attracting new buyers, rather than sharing updates on planned projects like the SafeMoon Exchange and the SafeMoon game promised on the company’s road map.
But, many users are calling out the lack of posts about utilities for the token. SafeMoon is responding to these complaints with promises of coming updates. For instance, it has been teasing “Project Pheonix [sic]” on social media, but investors are still in the dark. What is this project? And when are details coming?
The SafeMoon social media strategy also adds confusion to the liquidity question. Despite a growing follower count and buying-focused messages, token prices are stagnant.
The Bottom Line on the SafeMoon Crypto
So where do you go from here?
For many of our readers, it is clear that SafeMoon is an attractive cryptocurrency. Social media platforms are filled with bullish SafeMoon holders who see the token as a true ticket skyward. However, there are real questions remaining. SafeMoon prices are currently stagnating, as are daily trading volumes. It is possible that an over-burning of coins is reducing liquidity too quickly, therefore preventing new investors from buying in.
In fact, this dynamic has prompted some high-profile criticism of the SafeMoon crypto. A handful of crypto influencers have accused SafeMoon of being a scam coin. Lark Davis has compared the token to a Ponzi scheme. Prominent scam-coin watchdog War on Rugs is particularly skeptical of SafeMoon, due mostly to the developers’ ownership of the liquidity pool. Others agree, equating the high transaction fees to the early investor rewards that are present in Ponzi schemes.
SafeMoon has taken great pains to respond to these accusations. Most often, the company accuses critics of spreading “fake news” and trying to sow uncertainty and doubt in investors. They have put effort into fighting back against scam-coin claims with videos on social media.
We do not at this point have clear insight on the liquidity pool, or what SafeMoon has in store for the future. As critics like Davis have highlighted, crypto bulls have fallen prey to scams before. But just as true is the fact that little-known altcoins have proven their ability to deliver big gains.
The risk right now is that trading volume and interest will continue to drop, and that holders will be left with a token with no real utility. Who wants to be caught holding the bag?
We will continue to research SafeMoon to answer your questions, and to help guide your investment choices. For now, continue to do your own due diligence and make sure you know exactly what you are getting into.
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article.