Meme coin Safemoon (SAFEMOON) ($800M market cap) is encouraging users to upgrade to its v2 SFE token by setting a 100% tax on v1 SAFEMOON transactions.
Safemoon exploded in popularity in mid-2021, reaching a $6B market cap, before settling around $1B. The project is unique in its transaction "tax" structure, where all SAFEMOON transactions are taxed at a 10% rate. Half of that tax is redistributed to SAFEMOON holders as "reflections," and the other half is sent to liquidity providers like PancakeSwap and exchanged for Binance coin (BNB) to increase liquidity.
Safemoon has been characterized as a scam coin due to its limited utility and sketchy smart contracts. According to DoxxLocker, "a deep flaw in the automatic liquidity system built into the contract allows the developers to withdraw the generated liquidity into other wallets." DoxxLocker believes that by August 2021, $68M in reflections had been mis-distributed from the v1 tax pool. It is believed that the Safemoon team is taking this money.
The project's v2 upgrade is unpopular among SAFEMOON holders because it is not fully audited, and currently it can be difficult to sell the v2 SFM token.
When the Safemoon team announced the v2 upgrade two weeks ago, they took an unusual approach to the transition. When wallets transitioned from v1 to v2, they paid the 10% tax, but the reflections for the transfers were paid to v1 holders. This means that as more wallets transitioned to v2, the reflections grow larger for remaining v1 holders.
As of December 29, ~10% of Safemoon wallets had transitioned to v2 (not counting dust wallets). The Safemoon team discussed solutions in public, settling on a plan to lock out old wallets.On December 29, Safemoon imposed a 100% tax on v1 transactions with just hours of notice before changes went into effect. This means that if anyone does anything with a v1 SAFEMOON token besides upgrade to v2, it gets taxed away. If an investor buys the v1 SAFEMOON token on an exchange that has not upgraded to Safemoon's v2 protocol, the v1 tokens will be taxed away, and the investor will receive nothing.