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SafeMoon (SFM): Structure, Controversy and Lawsuits

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SafeMoon is a troubled cryptocurrency facing multiple class-action lawsuits. It offers a unique structure that encourages people to hold, rather than sell, which was originally intended to make it a safer, more profitable investment. But its value plummeted following revelations of false statements from the company, which have been the focus of legal complaints.

The lawsuits allege that developers made false statements about the token and misled investors so they could profit off the artificially inflated tokens. Allegedly, the portion of the 10% tax the company charged for each SafeMoon trade that was supposed to be redistributed to coin holders in the coin’s liquidity pool, or LP, instead was accessible to SafeMoon founders.

Because of this, several executives, including the token’s founder and CEO, along with several celebrities that endorsed the coin, were accused of manipulating investors to hold their tokens while the executives and celebrity influencers sold their own holdings, a process referred to in the cryptocurrency sphere as a “pump and dump” scheme.

How does SafeMoon work?

To invest, buyers must exchange other cryptocurrency tokens, like Binance coins (BNB), for SafeMoon. Since SafeMoon is a fairly new and controversial coin, popular platforms like Coinbase don’t support its exchange, so it can only be traded on a decentralized exchange like PancakeSwap or SafeMoon’s own SafeMoon Swap.

Liquidity pools

SafeMoon is a decentralized finance — or DeFi — token, one of several digital assets aiming to carry out a range of complex transactions without the help of an intermediary such as a bank or a broker.

DeFi uses a liquidity pool, or LP, to stabilize the value of tokens. LPs lock multiple cryptocurrencies into a smart contract, which gives the currencies liquidity, allowing investors to trade tokens directly with other users instead of entering a traditional market.

Locking LP

SafeMoon in particular was intended to be a safer, more profitable investment due to its so-called automated locking LP.

Originally, SafeMoon could be traded with an accompanying 10% tax, half of which was to be put directly into the LP and “locked in,” and half of which was supposed to be “burned,” or taken out of circulation to decrease supply and increase value.

This safety measure was meant to set SafeMoon apart from other new coins, which had unprotected LPs and were vulnerable to rug pulls, a common cryptocurrency scam where a coin’s value could suddenly collapse and its creator could shut it down, leaving investors with a worthless currency.

Like other cryptocurrencies, some people bought SafeMoon tokens in hopes that they would increase in value through short-term trading or because of long-term demand associated with the use of the SafeMoon network, which is marketing several additional ventures, including a clean-energy project and an exchange.

Class-action lawsuits

As of July 2022, SafeMoon creators are facing multiple class-action complaints that allege they artificially inflated the value of the coin through false promises of its financial safety. Among the complaints:

  • SafeMoon’s founders and the celebrities who endorsed the coin allegedly defrauded investors through a “pump and dump” scheme, causing token holders to lose hundreds of millions of dollars.

  • SafeMoon LLC allegedly failed to register the tokens as securities with the U.S. Securities and Exchange Commission.

  • SafeMoon allegedly did not, in fact, lock the 10% transaction fees into LPs, but instead had access to these pools, allowing SafeMoon to redirect funds and leaving the token’s value vulnerable.

  • In December 2021, SafeMoon developers allegedly forced investors to switch to a second version of the coin through a 100% tax of the original, without providing advance notice.

Essentially, according to class-action complaints, SafeMoon creators misled investors into purchasing an unstable currency and profited off their losses. As of this writing, the token’s value has plummeted by around 99.9% in just a few months.

Should I invest in SafeMoon?

Cryptocurrencies have historically been prone to rapid shifts in value, and SafeMoon has had an especially steep decline. Digital assets can be high-risk investments, and SafeMoon has already disappointed many of its investors. Controversy aside, SafeMoon currently has no proven real-world use or competitive advantage over other cryptocurrencies. And unlike other digital assets, which are decentralized, a large portion of its tokens are “are owned by SafeMoon itself,” according to one of the class-action complaints against its creators.

If you’re looking to invest in cryptocurrencies, SafeMoon is, ironically, one of the least safe choices. Prospective investors may be better off starting with a coin that is commonly traded and relatively well-established in the market, though that’s no guarantee of success in such a volatile space.

Disclosure: The author and editor held no positions in the aforementioned investments at the original time of publication.

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