So why did safemoon go viral? It has only been in existence for less than two months with no regular users and no endorsement from influencers, let alone any technology.
In this article the author Bitcoinist gives a detailed analysis of the SafeMoon De-Fi token and helps answer the burning question that plagues new crypto investors. Is SafeMoon a Good Investment for New Crypto Investors?
Let’s take a look at the principles behind safemoon.
The principles of Safemoon
Safemoon utilizes the PoA consensus mechanism, and its block creators, also known as validators, are pre-selected by Binance to ensure project centralization. SafeMoon is employed and run based on three key elements:
Reflection: Trading fees are redistributed to existing holders. The 5% handling fee is automatically distributed to all token holders according to the token holder’s proportion of tokens.
Liquidity fund pool: Part of the handling fee in each transaction is used for the fund pool and other platforms, and 5% of the handling fee is automatically exchanged for LP to provide liquidity. But the 5% fee is split 50/50, half of which is automatically converted to BNB (Binance Coin) to support the Safemoon/BNB trading pair. Auto LP is what safemoon boasts of. It has a function that acts as a two-fold beneficial system for holders. First, the contract takes sellers’ and buyers’ tokens and adds them to the LP, creating a solid price floor. Second, the penalty is an anti-arbitrage mechanism that guarantees trading volume as a reward for holders. In theory, the added LP creates stability from the provided LP by adding a tax to the token’s overall liquidity, thereby increasing the token’s overall LP and supporting the token’s price floor. This is different from the burn function of other reflection tokens, which in the short term only facilitates the authorization of supply reduction. With the addition of SAFEMOON token LP, price stability reflects this feature, providing holders with a solid price floor and cushion. The goal is to prevent a bigger drop when big holders decide to sell their tokens later in the game, which prevents price fluctuations as much as it would without the automatic LP feature. All of this is to alleviate some of the hassles we are seeing with current DeFi reflex tokens. It is believed that for these reasons, this model and protocol will triumph over outdated reflection tokens.
Token burn: A small portion of the transaction fee in each transaction will be moved to the Safemoon burn address for burning. The burn will be carried out by the relevant team according to the situation. Sometimes burn matters, but sometimes doesn’t. However, in the early days, continuous burn on either protocol was good, meaning that burn could not be limited or controlled in any way. The token burn is controlled by the team and promoted based on achievements, helping to keep the community rewarded and informed. Manual burn conditions and amounts can be advertised and tracked. SafeMoon aims to implement a burn strategy that is beneficial to those involved in the long term. In addition, the total number of SAFEMOON burned will be displayed on the website, which further increases the transparency of identifying the current circulating supply at any given point in time.
As of September 23, 2021, Safemoon’s market cap was $856,476,898 compared to Bitcoin’s market cap of $823,203,662,065. So far, the total supply of Safemoon is 1,000,000,000,000,000 and the circulating supply is 575,211,536,874,138.
Safemoon’s Safety Monthly Protocol
A common misconception of static rewards, LP acquisition, manual burns, and heavy APY averages is the subjectivity of impermanent losses that bring LPs (liquidity providers) into farming reward generators. With the explosion of DeFi, we are seeing too many new cryptocurrency prospectors being sucked into a high APY LP farming trap, feeling hopeless as they are pushed out by the earlier buyers with higher staking rewards. We’ve all been there and seeing those shiny 6-digit numbers can be pretty damn tempting to jump in. However, almost always the token suffers from an inevitable valuation bubble, followed by a bubble burst and an imminent price crash. That’s why we’re seeing the mass adoption of static rewards, also known as reflection, a separate concept that tries to remove the trouble caused by agricultural rewards.
Why is it a static reward? Static rewards solve a series of problems. First, the reward amount depends on the number of tokens traded. This mechanism aims to alleviate some downward pressure on the tokens caused by early adopters selling tokens after the crazy high APY in agriculture. Second, the reflection mechanism encourages holders to stick to their tokens in order to obtain higher rebates, which are based on the percentage of execution and depend on the total tokens held by the owner. Manual burns are sometimes important but sometimes don’t. However, in the early days, continuous burns on any protocol are good, which means that burns cannot be limited or controlled in any way. Burns are controlled by the team and promoted based on achievements, helping to maintain the rewards and information of the community. The conditions and amount of manual burning can be advertised and tracked. SafeMoon aims to implement a burn strategy that is beneficial to long-term participants. In addition, our readings on the website also show the total number of SAFEMOON burned, which further improves the transparency of identifying the current circulating supply at any given point in time.
The uniqueness of SafeMoon
SafeMoon’s white paper discussed how high-yield liquidity mining raises the threshold for latecomers to enter the market in the emerging decentralized financial industry.
SafeMoon aims to eliminate the pressure that may be generated on the tokens when the tokens are sold through the concept of static rewards (making the reward depend on the number of tokens traded). The white paper also pointed out that its “reflect mechanism” has enhanced the incentive for SafeMoon holders to be more willing to hold tokens for a long time. SafeMoon’s automatic liquidity pool (LP) also provides holders with the reserve price/price buffer, which has increased the stability of the protocol. According to the white paper, SafeMoon’s manual burn strategy will also benefit SafeMoon token holders in the long run.
The security mechanism of the SafeMoon network
According to the introduction in the SafeMoon white paper, the security plan of the protocol is as follows: Before the issuance, the developer burned all the tokens in the developer’s wallet and did a fair issuance on DxSale. The liquidity provider will be locked for four years in DxLocker, and after each transaction, a liquidity provider will be generated and locked in PancakeSwap.
How did SafeMoon gain an astonishing $5 billion circulating market value in just 50 days?
First, a simple technical analysis shows that SafeMoon’s smart contract is a complete fork of another project called PIG. Now, let me do a short analysis using the PIP code.
Currently, BSC adds thousands of new projects every day, of which at least 50% are PIP fork contracts. Among the tokens with a market value of more than $10 million in circulation on the BSC blockchain, more than half are also PIP forks. Therefore, let us collectively refer to the PIG and SafeMoon contract as the “PIG contract”. These contracts are perfect for the following reasons:
Every transaction of SafeMoon has a 10% transaction fee, of which 5% will be automatically redistributed to all token holders.
This automatic distribution of 5% transaction fee is the meaning of “holding = mining”. For SafeMoon, since 40% of the tokens have been burned, 0.05*0.4=2% of the transaction fee will be burned, and the remaining 3% will be automatically distributed to the holders as holding dividends. Please note that every transaction will receive dividends. That’s perfect!
This model encourages investors to hold and never sell. It is roughly estimated that a one-year dividend can reach 50-60% (depending on the frequency of transactions and fluctuations in the amount).
However, this is not the most significant reason for the success of SafeMoon. The second feature, also known as “self-growth of liquidity”, is the key to SafeMoon becoming the king of coins such as BSC, ETH, and HECO.
Liquidity grows itself
SafeMoon charges a 10% fee for each transaction, of which 5% will be directly added to the liquidity pool, that is, liquidity is recovered.
For example, when the number of tokens in the contract address exceeds 5 billion, SafeMoon will increase liquidity by selling 25 billion tokens, representing 50%, and then adding BNB and the remaining 50% of the tokens at a ratio of 1:1 to the liquidity pool.
As we all know, new projects generally are faced with the problem of insufficient liquidity in the early stages of startup. If there are no investors actively increasing the liquidity in the pool, the depth of the pool is only driven by the growth in the price of the token, which is just like a hair off a bull’s back. Therefore, many projects that fail to increase liquidity themselves will face a serious shortage of pool depth, which will heavily hinder the further development of the project. And safemoon has this competitive edge to recycle liquidity in the pool.
SafeMoon burned 40% of the tokens. In addition, the SafeMoon mechanism has a 5% bonus function, so 2% of the tokens are directly burned, which leads to the continued burning and deflation of SafeMoon.
All in all, the above three ingenious designs are the fundamental reasons that led SafeMoon to success.
Safe Moon’s Plan
SafeMoon has drawn up a roadmap for this year. In the first quarter of this year, the company said it had doubled the size of its team and started a marketing campaign. Next, the company plans to develop a SafeMoon app (it’s unclear what the app will do), a wallet and games. The company also said it plans to explore allowing the currency to be traded on exchanges such as Binance, and to start building its own exchange, expanding its team by 35% and opening offices in the UK and Ireland. Later this year, the company said it intends to complete the SafeMoon Exchange and open a branch SafeMoon office in Africa.
Is SafeMoon a new Dogecoin or a scam?
Overall, SafeMoon has a very interesting token model, which aims mainly to help buyers get rewards and lead sellers to penalties. The project has not yet provided any actual economic-added value. Therefore, at present, the price is mainly driven by the attention of communities and projects in the cryptocurrency space.
In addition, the development team behind SafeMoon is anonymous and can only legitimize itself through the rules stipulated in the smart contract. However, no third parties have checked and verified the SafeMoon protocol code. Therefore, you should be extra cautious when using SafeMoon. In the past BSC, the anonymous development team has conducted millions of scams.
However, on its own, it cannot be said that an anonymous team is a bad omen for a cryptocurrency project. Famous DeFi projects such as SushiSwap often have this function. There is a trend that can be seen that a growing number of anonymous teams are developing decentralized financial (DeFi) projects. Nevertheless, in such projects that are considered “legitimate”, the code is always checked by various external teams with a good reputation in the cryptocurrency field. This is to prevent fraud and improve the overall reputation of the project in the community. If SafeMoon hopes to trigger similar hype like its model Dogecoin, the project should consider trust-building measures as soon as possible.
Is SafeMoon a Good Investment for New Crypto Investors?
Since its launch, Safemoon has risen 3253%. There is no doubt that this token is designed for one purpose—that is, appreciation. All the token economic designs in Safemoon encourage investors to hold digital currencies, because, in this type of economy, investors can obtain passive income from transactions. More investors have come here, which has promoted Safemoon’s rise.
Safemoon is backed by a strong community, and investing in this token is a good choice. However, you first need to consider all potential risks. For example, like other cryptocurrencies, Safemoon also features high volatility. In addition, it may also encounter the problem of insufficient liquidity. Although Safemoon has a mechanism to prevent this from happening, it is not 100% preventable. All holders of Safemoon tokens will be charged a 10% handling fee, which is distributed to existing holders.
Below are explained risks of buying saftemoon.
Although buying safemoon offers you great potential, you should realize that investing in cryptocurrency is risky. For example, the high volatility of cryptocurrency is always at risk, which may lead to unexpected rise and fall in currency prices. This can be caused by anything, even encryption whales that may involve price manipulation. Since most currencies are still following in the footsteps of bitcoin, it is not enough to focus on safemoon itself, but also BTC and cryptocurrency markets.
Next, if you buy safemoon cryptocurrency, you may want to try leveraged trading. This is usually very profitable for traders who know how to deal with risk, but the more leverage you use, the greater the risk itself. When it comes to leveraged trading, it is usually carried out through contracts for differences, which means that you can make money whether prices rise or fall, as long as you can accurately predict their trend. In other words, to forecast safemoon price is the most important.
If your safemoon price forecast is correct, you can make a lot of profits, but the more leverage you use, the less room you have to make mistakes. That’s why your safemoon price forecast must be very accurate, and why you probably shouldn’t trade with leverage until you have enough experience to think you’re an encryption expert. On the contrary, you only need to buy safemoon cryptocurrency in a normal and traditional way, because even so, there is enough risk for new traders.
In short, you can invest in safemoon, but considering its high risk, don’t invest all your money. In addition, even in periods of high volatility, you can use the average cost in dollars to get the maximum benefit. This token has not yet shown its full potential. As you know, in terms of market value, it ranks 108th among all cryptocurrencies.
Disclaimer: The information provided on this page does not constitute investment advice, financial advice, trading advice, or any other sort of advice and it should not be treated as such. This content is the opinion of a third party and this site does not recommend that any specific cryptocurrency should be bought, sold, or held, or that any crypto investment should be made. The Crypto market is high-risk, with high-risk and unproven projects. Readers should do their own research and consult a professional financial advisor before making any investment decisions.