Continue Capital: Analyzing the Investment Logic Behind the Billion-Dollar Dogecoin SafeMoon

This article is from Chain News, author: Pi Ma.

The story begins with this "土狗王" (meme coin) SafeMoon across three chains (ETH/BSC/HECO), which turned 0.2 ETH into 67 million USD in just 55 days. And this is not the only operation, leaving many people in a state of rage: where is the promised spring of value investing?!

Back to the point, the recent market performance under the impact of Doge, Shiba, and SafeMoon, coinciding with a correction in mainstream coins, has caused anxiety for many. However, while we can joke about it, we still need to sort out the underlying investment logic. A disclaimer: I do not hold any of the aforementioned coins, and they do not particularly fit my personal investment framework, but this does not prevent us from reviewing it later to try to find some implicit investment logic as a reference for future investments; this is the core purpose of this article.

A bull market is essentially a grand history of missed opportunities. After seeing countless nostalgic moments and lamentations, one becomes accustomed to it. If some basic logic cannot be grasped, it will still return to three unchanging dilemmas: if given a project, would you dare to buy it? If you bought it, would you dare to heavily invest? If the heavy investment corrects, can you hold on? I can even confidently say that if given another chance, I still wouldn't be able to hold on.

Returning to Doge, it can basically be attributed to one main reason: a massive influx of new retail investors. Whether it's the wealth effect from Elon Musk's strong endorsements or the community's spontaneous promotion, the core is that it has brought in a large wave of newcomers, and these projects generally have low prices. Why is there always a surge of low-priced coins in the later stages of a bull market? In fact, as the market progresses, more retail newcomers flood in. If you have participated in other stock markets or investment markets, you will find that the type of soil determines the market. The soil for retail investors is the newcomers' lack of understanding of fundamentals and investment knowledge, attracting them with only one goal: to get rich quickly. High prices intimidate ordinary people; the US stock market has high prices, and in every round of the A-share market, there is a slogan to eliminate 3-yuan and 5-yuan stocks. People who buy high-priced stocks generally know what they are buying, why they are buying, when it is a reasonable valuation, and when there might be a bubble. Those who can afford a share of Moutai at least have some threshold for their funds, and their wealth and knowledge have some accumulation. However, retail investors are different; some may not even know what they are buying, so usually, quality stocks have relatively high prices. Bull markets focus on momentum, while bear markets focus on quality; BTC/ETH drop relatively less during bear markets. New retail funds + low prices are the core; this is our view on why newcomers would buy Doge.

The second question is why they would come to the cryptocurrency space? If WSB is the cannon shot of retail investment impacting Wall Street, then the crypto space is the paradise for marginalized retail investors on the internet. The rise of the WallStreetBets community has provided a great platform for retail investment, just like the early BitcoinTalk and Reddit forums in the crypto space. Decentralization, community-driven, open-source, and inclusive naturally attract a large number of people harboring dreams of getting rich. This also reflects the deep internal competition of the new generation. The more stable social development becomes, the more rigid the class structure, and the smaller the opportunities for ordinary people to rise. The difficulty for the new generation to accumulate wealth has sharply increased, and newcomers entering the investment market tend to overestimate their investment capabilities. Retail investors are also willing to take on more risks to hedge against various unfavorable circumstances they face. YOLO means you only live once; please act boldly. This world rewards innovation and risk-taking. Regardless of your wealth level, you should allocate a certain percentage, like 1%/5%, divided into ten parts, to participate in high-odds investments, provided you have a solid foundation, just like the foundation in the crypto space is BTC/ETH. Only when these yield profits can you have the energy and mood to research new projects and try new technologies. "When the granaries are full, one knows etiquette; when food and clothing are sufficient, one knows honor and disgrace." Maintaining a positive and stable mindset is one of the core elements of investing.

Therefore, a bottom-up community has gathered a large number of retail investors, the rise of DAO organizations (by the way, we may not have considered for a long time why the corporate system exists or why it exists in its current form rather than another; some of my thoughts are not very mature, just a brief mention), the explosive growth of open-source environments like GitHub has greatly released individual freedom and innovation. The increasing difficulty of wealth accumulation for the new generation has driven the rise of retail investment. The emergence of convenient infrastructure like Robinhood/Coinbase App/Cash App has made it increasingly simple for ordinary users to participate in the market, so the penetration rate of the cryptocurrency space will continue to rise. We can refer to the "Innovation-Diffusion Curve" theory for the development of penetration rate (a classic theory proposed by American scholar Everett Rogers in the 1960s about persuading people to accept new ideas, new things, and new products through media). If the current number of people participating in cryptocurrency is 100 million, based on the penetration speed of internet users, it is entirely possible to achieve a billion people in cryptocurrency penetration within ten years.

Next, before analyzing SafeMoon, let's first discuss the BSC ecosystem.

The ceiling of investment lies in people and the market. How many users your product can serve and how much value you can create for those users determine the value of your product. The ultimate goal of investment is to discount free cash flow to calculate the company's final value. Based on the number of people served, the size of the market, set the company's growth rate, gross profit, capital expenditure, etc., then discount the cash flow over time, plus a possible growth rate to calculate the company's terminal value. If you can serve a million people, you have a corresponding valuation for a million people; if you can serve a billion people, you have a corresponding valuation for a billion people. (To add, our long-term vision is to let the cryptocurrency space serve a billion people globally.) Just like the project Pi.Network we led in the past, it has a solid user base of a million, but for some reason, it has completely changed in the domestic market, with no mention of other values.

I have also shared internally how to view BSC and HECO and other ecosystems. Almost every city in China has Industrial and Commercial Bank, but third and fourth-tier cities still have many local banks like Ningbo Bank and Foshan Bank. It cannot be said that people in first-tier cities have trading and lending needs while those in fourth and fifth-tier cities do not; they have those needs too, but there is a certain time lag in the market. Therefore, projects represented by Cake/Xvs meet the DeFi needs of new Binance users. Once there is demand, what about supply? It is the development environment. We see why Binance created a Binance Chain that did not take off, while the Binance Smart Chain (BSC) forked from ETH skyrocketed; precisely because BSC perfectly replicated the development environment of ETH. Once developers are familiar with a set of development tools, they will not easily learn other skills; if they can lie down, they won't sit up. BSC instantly attracted millions of users, and the development ecosystem gradually evolved. The basic needs of users have been met, which is the specific value of these projects. But why do these fork projects generally have lower PE ratios? Because you are not original, the market discounts your creativity. If you are doing some minor innovations every day, piecing things together, you will lack judgment on the industry landscape and in-depth exploration of the technical aspects. What you do may even be transparent to ordinary users without a professional background; where is the surprising product? Where is the creativity that makes people applaud? Without creativity, there is no efficiency, and without high growth expectations, the market naturally gives you a low valuation. Will anyone care about these? Will anyone engage in value investing? Growth is the epitaph of cost. When you suffer painful losses, you will also grow. Whether you care or not, there will always be a small wave of survivors from the last round who care. This is why any investment market is destined to gradually become more professional and institutionalized. Why is it so hard to make money in the stock market? Why is internet entrepreneurship so competitive? Because the period of dividends has passed. Our industry still has growth dividends due to insufficient penetration, and the crypto space will gradually solidify in the future. The volatility is meant to eliminate retail investors, and I hope everyone can find a suitable position for themselves in the future.

Finally, the crown jewel of the Binance ecosystem, the "土狗王" SafeMoon across three chains (again, a reminder, do not think this is an invitation for you to participate). Below is an internal technical analysis for a glimpse into the details.

In the past week, Doge has gained unprecedented popularity under the influence of the wealthiest, and its price has reached new highs. At the same time, communities at home and abroad began searching for the next Doge: the new project SafeMoon quickly entered people's sight with its slogan "reward holders, punish sellers," and began to soar.

As of this article, the data for SafeMoon is as follows:

• Total market cap of 8.5 billion USD, of which 40.6% of tokens have been burned, resulting in a circulating market cap of 5.05 billion USD
• 795,330 addresses
• Over 2 million transactions
• Online for 54 days and 9 hours
• ……

How did SafeMoon achieve an astonishing circulating market cap of 5 billion USD in just 50 days?

Setting aside all market and human factors, let's conduct a simple analysis from the perspective of smart contract technology. Given that SafeMoon's smart contract is a complete copy-paste of another project, PIG, let's briefly analyze the contract code of PIG.

Currently, there are thousands of new tokens added daily on the BSC chain, with at least 50% being PIG-type contracts. Among the tokens on the BSC chain with a circulating market cap exceeding 10 million USD, more than half are also PIG-type contracts. Therefore, the contracts of tokens like PIG and SafeMoon are collectively referred to as "PIG contracts." They are considered perfect because of the following three characteristics:

Holding Equals Mining

Every transaction of SafeMoon incurs a 10% fee, of which 5% is automatically distributed to all holders.

For every transaction, regardless of buying or selling, the contract automatically distributes 5% of the fee according to the proportion of tokens held by all holders, which is known as "holding equals mining." For SafeMoon, since 40% of the tokens have already been burned, it means that 0.05*0.4=2% of the fee will be burned, and the remaining 3% will be automatically distributed as rewards to holders. Note: here, every transaction will receive dividends, perfect!

As a new project, SafeMoon's success today is largely due to "holding equals mining," which incentivizes investors to hold rather than sell. It is estimated that annual dividends from new coins could reach 50-60% (fluctuating based on transaction frequency and quantity).

However, this is not the biggest reason for SafeMoon's success; the second characteristic, "self-growing liquidity," is the key to SafeMoon becoming the king of meme coins across BSC, ETH, and HECO.

Self-Growing Liquidity

Every transaction of SafeMoon incurs a 10% fee, of which 5% is directly added to the liquidity pool, achieving "self-growing liquidity."

https://BSCscan.com/address/0x8076c74c5e3f5852037f31ff0093eeb8c8add8d3#internaltx

Through this link, you can see every transaction where the contract automatically adds to the liquidity pool. Due to the high market cap of Moon, each liquidity addition reaches an astonishing 3600 BNB.

From the contract, we can see that Moon will add liquidity when the number of tokens in the contract address exceeds 500,000,000,000: selling 250,000,000,000 tokens, which is 50%, and then pairing the BNB obtained from the sale with the remaining 50% of the tokens 1:1 to add to Moon's liquidity pool.

It is well known that new projects generally face the problem of insufficient initial liquidity in their pools. If investors do not actively add liquidity to the pool, relying solely on the price increase to drive the depth of the pool is like a drop in the bucket. Therefore, many projects without self-increasing liquidity features often face severe liquidity depth issues, greatly hindering the further development of the project.

From the above image, we can see that Moon's liquidity pool already has 230 million USD. Without the self-increasing liquidity feature, based on the current token price and without any external liquidity injection, the pool would likely not exceed 40 million USD, a staggering difference. The current depth of Moon's pool is truly astonishing to all meme coin players, mainly thanks to the perfect contract feature of self-increasing liquidity.

Burning and Deflation

Moon has burned 40% of its tokens, and due to the 5% dividend feature, 2% of the fees are actually burned directly, which leads to Moon continuously burning and deflating.

In summary, the clever design of these three contract features is the fundamental reason why SafeMoon has become the number one meme coin across three chains.

By the way, the reason why Uni's PIG model did not shine as brightly as BSC is due to high gas fees, resulting in low trading frequency on Uni, leading to lower fees and thus fewer dividends and liquidity additions. The contract's power was not very apparent. When it came to BSC, the trading frequency increased by more than ten times, amplifying the advantages of the PIG model infinitely, leading to exponential growth. This also makes us look forward to Uniswap's L2 deployment and the arrival of V3, as the warm-up of these smooth projects may just be an appetizer for L2 Uniswap.

PIG Contract

PIG is the first token of this type of "perfect meme coin contract" launched on the entire BSC chain, and SafeMoon is a complete copy-paste of PIG's contract code, but the latter has far surpassed its predecessor and original in market cap.
I refer to all tokens that forked from the PIG contract as "PIG model."

The "PIG model" accounts for about 50-60% of the new tokens launched daily on the BSC chain.

For tokens on the BSC chain with a circulating market cap of over 100 million USD, those launched within the last 50 days, the "PIG model" accounts for over 60%.

For tokens on the BSC chain with a circulating market cap of over 10 million USD, those launched within the last 50 days, the "PIG model" accounts for over 40-50%.

For tokens on the BSC chain with a circulating market cap of 1-10 million USD, those launched within the last 50 days, the "PIG model" accounts for over 70%.

On the HECO chain, all recently active meme coins are of the "PIG model."

Thus, we have sorted out the entire context of the Doge/SafeMoon hype. When I saw the data for Moon, I was astonished to discover a towering tree with a market cap of 10 billion USD quietly emerging from an unfamiliar corner. It is truly remarkable how the cryptocurrency space creates wealth myths, and it also makes one marvel at the unpredictable creativity of the crypto world. Even more exciting is that this is just the tip of the iceberg in the cryptocurrency field; countless new frontiers await exploration by everyone. Every seed sown in every inch of soil has the potential to grow into a vast forest; what you are cultivating is an era.