Safemoon Review
15 min read

SafeMoon Review: Ponzi Scheme or Legitimate Project?

By Steve Walters

SafeMoon is one of the newest and fastest growing altcoins, even in the crazy cryptocurrency market that’s seen a good number of tokens increase in value by thousands or even tens of thousands of percent in 2021.

Launched on March 8, 2021 it is a BEP20 token that exists on the Binance Smart Chain. It’s also quite unusual in a world of cryptocurrencies that are trying to reduce transaction fees to promote trading because it actually taxes sellers, thus penalizing users for trading the token.

In some respects it seems like SafeMoon is following the same approach to cryptocurrencies that value investors like Warren Buffet and Charlie Munger take to stocks. That is to follow a buy and hold philosophy, where those who hold the longest receive the greatest rewards.

Safemoon Overview

Featured Image via Shutterstock

The development team hopes this type of approach will help cryptocurrencies move away from the wild west perception they currently have. As it says on the SafeMoon Facebook page:

 Remember, getting to the moon takes time and the longer you hold, the more tokens you pick up.

With the prospect of infinitely increasing token generation (so long as you don’t sell), and with a price that’s jumped thousands of percent in just under three months, and a unique take on rewarding investors it’s no wonder the project has attracted a good deal of attention.

Chances are it’s caught your attention too, which is why you’re here. If you are considering adding SAFEMOON to your holdings then read on and be sure to take your grain of salt.

Remember that cryptocurrencies are inherently risky investments, even the oldest and most stable. New projects like this can create new fortunes almost overnight, but they can just as easily crash and burn. Make sure you never invest more than you are able to lose, and be sure to do your research and due diligence before making any investment.

That said, maybe you’re just here because you’ve heard the hype over SafeMoon and just want to learn more about what it is and what problem it solves. If that’s the case, then read on.

What is SafeMoon?

SafeMoon is an altcoin created on the Binance Smart Chain. It was launched on March 8, 2021 in a fair launch where the devs burned all their tokens, and participated in the coin offering just like everyone else. In the short time that SafeMoon has been in existence it has added nearly 2.5 million users to its protocol, while burning over 40% of the total token supply.

SafeMoon Home

SafeMoon has already burned nearly half its supply. Image via SafeMoon.net

SafeMoon was created to address the issue of impermanent loss, and as an additional feature it promotes buying and holding its token rather than speculating to drive up the price. It does this through a “tax” on any transaction where SAFEMOON tokens are sold.

One criticism of Bitcoin and similar cryptocurrencies is that they’ve strayed from their purpose. Initially created as an alternative to the centralized fiat currencies controlled by central bankers, Bitcoin and many other cryptocurrencies have become little more than commodities, with traders, investors, and speculators simply using them as investments and tradable assets.

However some critics have come forward to attack SafeMoon, saying the token is a Ponzi scheme, a scam, and a shitcoin. That’s a serious accusation and one we will look at in more detail mater in this piece.

What Problem does SafeMoon Address?

With the explosion of DeFi has come the problem of impermanent loss, and because so few investors understand the mechanisms that create impermanent loss there are many who have been sucked into the high APY yield-farming trap. It’s not surprising.

Seeing an APY of 100% or greater brings out the greed in most of us. Unfortunately what inevitably happens is the greedy trader gets pushed out by early investors who collect their profits and create the bursting of the valuation bubble.

SafeMoon

Three pillars of the protocol. Image via SafeMoon.net

It is due to this dynamic that the adoption of static rewards, also known as reflection, is gaining increasing popularity. Reflection seeks to eliminate the problem of impermanent loss caused by yield-farming.

And SafeMoon uses three simple functions in each trade to combat impermanent loss and create a better protocol. These are Static Rewards (Reflection), Manual Token Burns, and Automatic Liquidity Pools.

Static Rewards

The SafeMoon developers feel that using static rewards can solve a number of problems associated with yield-farming. For one thing, because the reward amount is conditional on the trade volume of the token there is a reduction in selling pressure of the token caused by early adopters selling tokens after farming the insanely high APYs.

Secondly, the mechanism is an incentive for users to continue holding their tokens, thus collecting an even greater number of tokens, similarly to the way dividends work for stock holders.

Manual Burns

Burns have been used by a number of protocols, and sometimes they can make a difference, but not always. Continuous automated burns tend to have a positive impact in the early days of the project , however the impact slowly loses its momentum since the burn can’t be controlled to maximize its impact.

By contrast a burn that’s controlled by the team and based on project achievements can help keep community engagement high, and the impact on the token just as high. Cypto communities appreciate the transparency that comes with advertised burns that can be tracked.

SafeMoon has implemented a burn strategy that’s meant to be beneficial to the community in the long term. The community is fully informed regarding the burns, and the total amount of tokens burned is always located on the homepage of the SafeMoon website, making it a simple task to identify the circulating supply at all times.

Automatic Liquidity Pool (LP)

The SafeMoon team calls the Automatic Liquidity Pools the “secret sauce” of SAFEMOON. They point out that Automatic LP provides two benefits to SAFEMOON holders.

The first is that the smart contract attracts tokens from buyers and sellers and adds them to the LP, thus creating a floor for price.

Secondly, the 10% tax on SAFEMOON sales acts as an arbitrage resistant mechanism that maintains SAFEMOON as a reward for holders, not as a speculative tool.

Safely to the Moon

How safe is this moon ride really? Image via SafeMoon.net

Both of these functions were included as an effort to alleviate some of the troubles seen with current DeFi reflection tokens.

SAFEMOON Tokenomics

There were 1 quadrillion SAFEMOON tokens created at genesis, of which 223 trillion were immediately burned by the developers. The remaining 777 trillion tokens were released to the community in a fair launch event on DxSale. Since then more tokens have been burned and as of May 27, 2021 there are a total of just over 583 trillion tokens in circulation.

The SafeMoon protocol is unique in that each sale transaction has a 10% fee levied, which is meant to incentivize holding rather than selling. The 10% fee is distributed as follows:

  • 5% fee = redistributed to all existing holders
  • 5% fee is split 50/50 half of which is sold by the contract into BNB, while the other half of the SAFEMOON tokens are paired automatically with the previously mentioned BNB and added as a liquidity pair on Pancake Swap.
SafeMoon Protocol

Is it fair to tax users for selling and give that tax to other holders? Image via SafeMoon.net

It is this mechanism that has the crypto community calling the project out as a Ponzi scheme since it rewards the early adopters and requires more and more money to flow into the protocol to continue rewarding those who join later.

Is SafeMoon Safe?

The volatility of the cryptocurrency market is well known, and judging by the existing price action of the SAFEMOON token it is no different. So those who are interested in investing can look forward to massive gains over short periods, and just as massive drops, usually even more rapidly.

While gains and losses are typical for any investment, the moves seen in SafeMoon are truly excessive. In addition to that, the project has been called a Ponzi scheme by various people, and a shitcoin by others. Still others have just called it an outright scam.

Calling it a Ponzi scheme is actually accurate since it follows a model whereby the profits made by early adopters are based on others paying more for the token at a later date. And the distribution of the selling fee definitely looks like the pyramid type-structure you’d see in a Ponzi scheme.

That said, it is still possible to make money from SafeMoon as a trader. Just understand what you’re getting into.

Safemoon Ponzi

A Ponzi is still a Ponzi. Image via Twitter.

SafeMoon has also been compared with BitConnect, a well known crypto Ponzi scheme that was shut down in 2018 after two U.S. state securities regulators warned investors of the similarity to a Ponzi scheme.

There have been other criticisms of SafeMoon based on the founders locking away over 50% of its own liquidity pool. There are claims that this could lead to a “rug pull” by the developers.

This is a type of exit scam where liquidity is intentionally drained from the market, leaving those holding the token unable to sell. SafeMoon’s CEO John Karony claims that the liquidity is being held to keep the token more secure.

The SafeMoon Team

The SafeMoon team remains small as the project is new, but they are looking to expand that team as they move into the DEX and NFT spaces in the future.

The current CEO of SafeMoon is John Karony, an ex-analyst for the U.S. Department of Defense. He is also the founder of TANO a newly created game streaming platform. He has no background in blockchain or finance.

SafeMoon Team

SafeMoon CEO John Karony (left) and CTO Thomas Smith (right). Image via SafeMoon.net

The CTO if SafeMoon is Thomas Smith, who is also a co-founder of TANO with Karony. Smith is a long-time entrepreneur and technology supporter. He is a self-taught programmer and has held a number of positions as Director of Software Engineering or CTO for a variety of companies.

How to buy SafeMoon

If you are still interested in SafeMoon then you can buy it from one of the BSC linked DEXs. These include PancakeSwap and Bakery Swap. If you’ve ever done yield-farming the process is similar to that, but it is a bit more involved than just buying Bitcoin at Coinbase.

Basically you need to purchase Binance Coin (BNB) first and then deposit it to a wallet that supports the BSC. These include MetaMask and Trust Wallet. Once you have BNB you visit the DEX and perform the swap from BNB to SAFEMOON.

PancakeSwap

Swap BNB for SAFEMOON on PancakeSwap. Image via PancakeSwap

There’s also a dedicated SafeMoon wallet that’s in development, and once released it may simplify the process of buying BNB and swapping it for SAFEMOON.

Before you Buy SafeMoon

We’ve already discussed the possibility of SafeMoon being a Ponzi scheme, which should raise some red flags and make you cautious over participating in this project. However there’s another reason to be cautious that was discovered more recently.

On May 25, 2021 it was reported that the blockchain audit and consulting firm HashEx claimed it has discovered a dozen vulnerabilities in SafeMoon (SAFEMOON) which puts the more than two million investors at risk.

HashEx Audit

There’s more than 1 problem with SafeMoon’s code. Image via HashEx blog

According to their findings the project has a number of vulnerabilities that include:

  • The smart contract allows for setting the commissions for the transfer of SAFEMOON up to 100%;
  • Rug pulling, excluding holders from commissions distribution A rug pull refers to liquidity theft by the developer;
  • Temporary blocking of token transfers;
  • Rendering token smart contract permanently inoperable.

HashEx claims that the Safemoon smart contract owner is an externally owned account controlled by a particular person.

The firm said that this account has a market value of $20 million with the sum constantly increasing due to the fact that the smart contract transfers part of the transfer commissions to the owner account.

In case the owner address is compromised, a rug pull of over $20,000,000 can happen at any moment. Because it’s about 15% of all liquidity that is being held in liquidity pools, the $SAFEMOON exchange rate can go down rapidly.

HashEx said that in case SafeMoon’s external account is compromised an attacker can drain the liquidity pool and prevent SafeMoon developers from sending tokens to a burn address.

Ponzi Scheme

SafeMoon appears to exist only to make money. Image via Twitter.

SafeMoon’s Chief Technology Officer Thomas Smith told HashEx that the issues raised by the security firm are not ones “we can update with a deployed contract without a hardfork.” Thomas told HashEx that SafeMoon has internal “policies and procedures” in place on how the contract operates “to alleviate risk of mishandling values.”

The combination of such critical vulnerabilities in SafeMoon is a sobering reminder of the risks that DeFi projects still bear on the market. Messari recently reported that a total of $285 million has been stolen as a result of DeFi hacks over the past two years.

A recent example is the case of the DeFi100 decentralized finance protocol that is being reported to have turned out to be a scam that ended with the theft of $32 million in user funds.

SAFEMOON Token History

As you can see from the chart below SAFEMOON has had a volatile history, even though it’s only been trading for a short time. From a low of less than $0.00000001 in March it shot up to an all-time high of $0.00001339 on April 20, 2021. It rapidly fell to $0.000003767 over the next three days.

SafeMoon Chart

In the volatile cryptocurrency space SafeMoon is particularly volatile and not very “safe” at all. Image via Coinmarketcap.com

It bounced and then dropped back near that $0.000003767 level again, bounced and traded in a range of roughly $0.0000075 to $0.00001 for several weeks and then declined again, finding support once again near the $0.0000035 level. Since then it has climbed back to the $0.0000047 level.

Very volatile, and caution should be taken.

Future Plans

The SafeMoon team has announced a number of plans for the future. One is that they have been working with Simplex to allow for the purchase of SAFEMOON using a credit or debit card.

They have also announced that they will start developing an NFT Exchange to trade non-fungible tokens, and a DEX called the SafeMoon Exchange. They are also exploring other options with exchanges such as Binance.

The team also announced the use of Minecraft as a testbed to see how the token might be integrated into video games. With SafeMoon CEO John Karony also the founder and CEO of the TANO video game streaming platform this should come as little surprise to the community.

Sad Moon Man

Image via Shutterstock

The information was released during an AMA on May 9, 2021 in which the team said they had plans for a “community test bed” that Karony called “a fun, inclusive way to incorporate the community with our testing of […] different technologies.”

The team added they have created a server within the Minecraft video game that will be part of this test bed, and added that more details would be available on Twitter and on the online chat platform Discord. The server will be used to “stress test” new developments, including non-fungible tokens (NFTs).

Other potential developments include the purposely named Project Pheonix, which SafeMoon continues to promote on social media, while releasing almost no details about what the project entails.

Conclusion

SafeMoon has undoubtedly made some people quite rich in its first months of existence. That’s very attractive, but it is also how all Ponzi schemes get started and build momentum.

People learn of early adopters making 500% or 5,000% returns and they get excited and pour their money into the scheme. Maybe it even keeps going for years, but eventually all Ponzi schemes eventually go bust.

As it stands SafeMoon has no utility other than to make money. And that only works if people remain excited and the price of the token continues rising. Only you can decide if that’s a risk you can afford to take. Because you could end up holding a bag of worthless shitcoins.

On the other hand the team has said they have plans that could provide utility to the platform. Linking it with online gaming could certainly bring in tens of millions of new users, but keep in mind that there are already well established projects tackling the online gaining vertical.

Adding a DEX and an NFT marketplace are no-brainers at this point, and with so many entrants into that space are probably non-starters anyway.

And then there’s the smart contract vulnerabilities that have been uncovered that certainly do point to the likelihood of a rug pull at some point in the future.

Yes you might make money with SafeMoon, but you might get burned as that rocket tries to shoot to the moon too. Be careful out there folks.

Featured Image via Shutterstock

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.
Steve has been writing for the financial markets for the past 7 years and during that time has developed a growing passion for cryptocurrencies. View all posts by Steve Walters ->

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