Continue Capital：Investment Logic Behind DOGE and the New Ten Billion Crypto Star — SafeMoon
By Palm Lee, co-founder of Continue Capital
SafeMoon, a new crypto project, surged in popularity in the last 55 days. One address turned 0.2ETH into US$67 million, and they’re more than this one case. This makes us somehow incompetent and furious： “Where is our Spring of Value Investing”？
Doge, Shiba, and SafeMoon have indeed rocketed to the moon while mainstream cryptocurrencies are suffering in the recent market. This performance of the ice and fire has made many people anxious. But perhaps, what’s more important, is to sort out the investment logic behind the rise of these shitcoins.
I declare that I do not hold any of the coins mentioned above because they don’t fit my investment thesis. But this does not affect my desire to uncover its implicit investment logic and mechanism as a way to learn. This is the core purpose of this article.
The bull market is a magnificent collection of missing stories. I have seen all kinds of sighs and regrets countless times. In investing, there are three difficult questions to be considered:
- Do you dare to buy an asset when someone recommends it?
- Do you dare to bet large bags?
- Can you hold on to the heavy position during down time?
For many, even going back in time could not change their behavior.
Back to the enormous rise of DOGE, I believe that the influx of crypto newcomers, called either by Elon Musk or by the community shill, flooded and aped in low-price coins because they think these are “affordable.” Like the stock market and other forms of investments, the later stage of a bull market attracts newbies who have no fundamentals but want to get rich quickly. The higher the unit price, the more they are afraid to invest.
In comparison, seasoned investors who understand what they are buying, why they are buying, and what’s a reasonable valuation go after quality investments that are typically priced “higher.” A good example is Maotai. It takes both wealth and knowledge to be accumulating Maotai after it mooned a few times. But retail newbies want to follow the trends rather than DYOR.
Secondly, If WallStreetBets is the rebel of retail investors against Wall Street, then the crypto world is a paradise for marginalized retail investors to bet against the blue-chips Big Tech. The rising of the WallStreetBets community provides a perfect stage for retail investors, just like the BitcoinTalk and Reddit forums in the early days of the crypto world.
Decentralization, Communization, Open Source, Inclusiveness — these are spirits favored by many people harboring a dream of wealth. As social mobility staggers, it has become increasingly difficult to move up the hierarchy. When an opportunity such as aping in Shitcoin comes, newbies suddenly perceive this as a rare chance to accumulate wealth. They tend to overestimate their investment skills and become risk-tolerant, trying to avenge all the unfair treatment they’ve suffered from over the years. YOLO has suddenly become “You only live once, please act boldly!”.
The world rewards innovation and adventure. No matter what your wealth profile looks like, you stay now, take a certain percentage, such as 1% or 5%, of your total assets, and divide it into ten equal parts to participate in risky investments. The premise is that you hold a solid basis such as BTC/ETH as your backup, after which you will have extra resources and appetite to explore new projects and new technologies.
As an old Chinese saying goes: “Only those whose barn is full can learn about manners, only those whose wardrobe is full can have a sense of dignity”. Maintaining a positive and stable attitude is one of the core elements of investment.
All in all, we believe that the entry of a large number of newbie retailers, the rise of the DAO, the explosion of open source environments such as Github all have significantly unleashed personal freedom and innovation. The difficulty of wealth accumulation of the new generation has led to irrational purchases from soar retail investors. The popularity of crypto on-ramp infrastructure such as Robinhood, Coinbase App, Cash App made it easier for ordinary users to participate in the market. The penetration rate of cryptocurrency will only continue to grow.
For more details about the development of penetration rate, please refer to the “innovation-diffusion curve” theory (a classic theory put forward by the American scholar Everett Rogers in the 1960s about persuading people to accept new ideas, new things, and new products through communication channels ). If 100 million people have participated in the crypto world, we can infer that one billion people may be in the crypto market in the next decade.
Next, to understand the mooning of Safemoon, we must first understand the whole BSC ecosystem.
Since the ultimate investment principle is to discount the future cash flow to calculate a company’s valuation, a company that serves millions of users would have a valuation that reflects the usage.
So why do Binance’s BSC and Huobi’s HECO exist in the first place?
Let’s use banks as an example. Every major Chinese city has a national bank that fulfills residents’ needs to transact, borrow and invest. But in small towns, these national banks are replaced by local banks or city banks. They serve the needs of residents in these rural areas.
Similarly, projects such as CAKE/XVS exist to meet the needs of new DeFi users in the Binance ecosystem. They want DeFi but don’t know where to harvest yields. Now Binance came into play.
Remember before BSC, Binance launched Binance Chain but failed to attract adoption. Instead, it forked Ethereum, and all of a sudden, developers could seamlessly transition to development from the expensive Ethereum ecosystem to BSC without learning new tools and therefore giving birth to dapps and driving thousands of new users.
But why are the PE ratios of these forked projects generally low? Because it is not original, and the market is discounting your lack of creativity. For an ecosystem, if all your developers do is to copy from other ecosystems rather than conduct in-depth research on the technology, your users won’t be amazed and loyal to the products.
Without creativity, there is no efficiency, and the high growth expectation is lost. There are always a small number of people who survived the last cycle. This is why any investment market is destined to become specialized and institutionalized. Why is it so difficult to make money in the stock market, and why is becoming a tech entrepreneur so much more complicated these days? It’s because both industries have gone through the initial raw period of hypergrowth. On the other hand, the Blockchain industry is still new, hence the dramatic price fluctuation, which eliminates retail investors who want to get rich fast. Such volatility will also gradually decrease, and that’s the day when you know crypto has become standardized and institutionalized.
Finally, let’s talk about the crown jewel of the Binance ecosystem, SafeMoon, the king of the shitcoin. (Remind again, we are not suggesting you participate) The following is an internal technical analysis by Continue Capital.
In the past week, DOGE became unprecedentedly popular under the influence of Elon Musk, and the price of DOGE also ushered in a new ATH. Simultaneously, communities worldwide began to look for the next DOGE: when SafeMoon quickly entered people’s sight with its slogan of “reward holders, punish sellers.”
As of this article, SafeMoon’s data is shown in the figure:
● a total market cap of 8.5 billion US dollars, of which 40.6% of the tokens have been burned, that is, the circulating market value reaches 5.05 billion US dollars;
● 795330 addresses;
● More than 2 million transactions;
● Launched 54 days and 9 hours;
● ……
How did SafeMoon reach an astonishing $5 billion circulating market value in just 50 days?
To start with, a simple technical analysis shows that SafeMoon’s smart contract is a complete fork of another project called PIG. Now, let me use the PIG code to make a brief analysis.
At present, thousands of new projects are added every day on BSC, of which at least 50% are PIG-forked contracts. More than half of the tokens with a market value of more than 10 million U.S. dollars in circulation on the BSC chain are also PIG-forked contracts. Therefore, let’s refer to the contracts of PIG and SafeMoon collectively as “PIG contracts”. These contracts are perfect for the following reasons:
1. Mining by Holding
Each transaction of SafeMoon has a 10% trading fee, of which 5% is automatically re-allocated to all token holders.
This automatic allocation of a 5% trading fee is what “holding = mining” means. For SafeMoon, since 40% of the tokens have been burned, the equivalent of 0.05*0.4=2% of the trading fee will be burned, and the remaining 3% will be automatically distributed to the holders as a holding dividend. Note: here is that every transaction will get dividends, perfect!
This schema encourages investors to hold and never to sell. It is roughly estimated that the dividends can be up to 50–60% in one year (depending on the frequency of transactions and fluctuations in the amount)
However, this is not the most significant reason that SafeMoon became so successful. The second feature, aka “liquidity self-growth,” is key to SafeMoon becoming the king of all shitcoins in BSC, ETH, and HECO.
2. Liquidity growing itself
SafeMoon charges a 10% fee for each transaction, of which 5% will be directly added to the liquidity pool, which is recycling liquidity.
Source: https://BSCscan.com/address/0x8076c74c5e3f5852037f31ff0093eeb8c8add8d3#internaltx
Following this link, you can see every transaction automatically added to the liquidity pool through a contract. Due to the market value of Moon being too high, each liquidity amount added reached an astonishing 36,00BNB.
We can see that Moon will add liquidity when the number of tokens in the contract address is greater than 500 billion: selling 250 billion tokens, that is, 50%, and then add BNB and the remaining 50% tokens to Moon’s liquidity pool in a ratio of 1: 1.
As we all know, new projects generally face the problem of insufficient liquidity at the initial stage of launch. If there is no investor to add liquidity to the pool actively, the depth of the pool will be driven by the increase of token price alone, which is like a drop in the ocean. Therefore, many projects without self-increasing liquidity function will face a severe shortage of pool depth, which significantly hinders the project’s further development.
As can be seen from the figure above, the liquidity pool of Moon now has reached $230 million. If there is no self-increasing liquidity function, it is estimated that the liquidity of Moon’s pool will not exceed $40 million at the current token price, without any active participation of external liquidity.
The gap is staggering! And all due to this mechanism of recycling liquidity back to the pool.
3. Burning Deflation
Moon burns 40% of the tokens. Besides, Moon’s mechanism has a 5% bonus feature, so 2% of the tokens are directly burned, which caused Moon to keep burning deflation.
To sum up, the above three ingenious designs are the fundamental reasons that lead SafeMoon to become the first crypto underdog king.
As an aside, UNI’s PIG mode was not as popular as BSC’s because gas costs were too high, which led to less transaction, which means less transaction fee, bonus, and liquidity. It’s not a virtuous circle.
When the same code migrated to BSC, the transaction frequency increases more than ten times, and the advantages of the PIG model are infinitely magnified, so SafeMoon explodes exponentially, which somehow makes us wonder if Uniswap’s L2 deployment and the V3’s will drastically change the landscape. After all, the PIG-style games could be pre-game for the imminent big win of Uniswap on L2.
PIG Contract
I refer to all tokens that fork the PIG contract as “PIG model”.
“PIG model” accounts for roughly 50–60% of the daily new launched tokens on the BSC chain.
More than 60% of the tokens on the BSC chain, with a circulating market cap of more than $100 million and launched within the last 50 days, are “PIG model”.
More than 40–50% of the tokens on the BSC chain, with a circulating market cap of more than $10 million and launched within the last 50 days, are “PIG model”.
More than 70% of the tokens on the BSC chain, with a circulating market cap of $1 million to $10 million and launched within the last 50 days, are “PIG model”.
The most recent active projects on the HECO chain are all “PIG model”.
So far, we’ve torn down the entire DOGE/SafeMoon buzz. To this day, I am still stunned at the myth of wealth creation in the crypto world. At some hidden corner in this world, a towering tree with a market value of $10 million quietly emerged. At the same time, the unpredictable creativity of the crypto world is also very fascinating. What is even more exciting is that this is just the tip of the iceberg in the industry, and there will be countless new land waiting for everyone to explore. Every seed sown on every inch of soil may grow into a vast forest, and what you are cultivating is a new era.
