What is a SAFT?
Summary
A simple agreement for future tokens, commonly referred to as the SAFT, is a contractual investment agreement in the domain of cryptocurrencies between crypto developers and its authorized investors.
SAFTs involve the agreement of the authorized investors to finance the crypto developers’ projects in exchange for discounted crypto tokens at a future date.
Accredited or authorized investors are investors who are legally allowed to deal in certain restricted and heavily regulated securities (such as the SAFT) based on certain parameters.
What is a Simple Agreement for Future Tokens (SAFT)?
A simple agreement for future tokens, commonly referred to as the SAFT, is a contractual investment agreement in the domain of cryptocurrencies between crypto developers and its authorized investors.
It is a contractual investment agreement that involves the agreement of the authorized investors to finance the crypto developers’ projects in exchange for discounted crypto tokens at a future date.
The contractual agreement, SAFT, is considered a security and falls under the U.S. securities regulations. However, the tokens transferred from the blockchain developers to the investors, under the SAFT, are not securities. Hence, they do not fall under the U.S. securities regulations as do the SAFT.
Why is a Simple Agreement for Tokens Considered a Security?
The basic essence of a financial security is the act of investing with the expectation of a future return. When authorized or accredited investors invest in a crypto project, they do so with the anticipation that when the under-development tokens are legitimized and released, they will sell for a higher price and the investor will make a good profit off of the investment.
The investment is completed via the SAFT. Satisfying the basic essence of any security, the SAFT is classified as a security and falls under the federal securities regulations.
How Do SAFTs Work?
When an Initial Coin Offering (ICO) – the cryptocurrency equivalent to an Initial Public Offering (IPO) – is ongoing, the tokens tied to the crypto project are not immediately accessible (since the domain of cryptocurrency is a fairly new and developing one and is not entirely legitimized and legalized as of now). They are bound by legal constraints or are incomplete.
To regulate investing in crypto projects, the SAFT is created and offered as the investment, instead of the actual tokens. It becomes the investment vehicle offered when an investor wishes to invest in an ongoing cryptocurrency project.
Who are Authorized or Accredited Investors?
The SAFT can only be entered into between a blockchain (crypto) developer and its accredited or authorized investors. Unlike the traditional financial markets, the cryptocurrency industry is new and developing and is not entirely legalized and legitimized. Hence, investment projects related to the crypto world are not available to retail investors. They are restricted to accredited or authorized investors.
Accredited or authorized investors are legally allowed to deal in certain restricted and heavily regulated securities (such as the SAFT) based on certain parameters, including satisfying certain regulatory requirements, income level, qualifications, experience, and so on.
Limitations of SAFTs
1. Excludes the retail investors/general public
The SAFT framework currently is only accessible by accredited or authorized investors. Hence, it is not open to retail investors or the general public.
2. Focused on U.S. federal laws
The SAFT framework is built around U.S. federal laws and is under their regulation, limiting SAFTs to the U.S. market. It can be deemed an illegal activity in some parts of the world, and hence the market is currently quite limited and restricted in nature.
The SAFT Project
Whitepaper
Toward a Compliant Token Sale Framework
The Whitepaper:
Introduces token networks
Describes the “direct token presales” occurring in the market today
Explains why those direct presales almost always create securities
Investigates some of the money services laws and tax risks associated with the direct presale model
Proposes the SAFT framework, setting forth its benefits and detriments over the direct presale model
Calls for discussion and development of the framework, including harmonization with international standards
Forms
Simple Agreement for Future Tokens
The SAFT is the commercial instrument used to convey rights in tokens prior to the development of the tokens’ functionality. In the U.S., the SAFT itself is a security, so it could be offered in a private placement to accredited investors. The tokens that are ultimately delivered to the investors, though, should be fully-functional, and therefore not securities under U.S. law. Outside of the U.S., the need to limit SAFTs or tokens to accredited investors will depend upon the laws of the local jurisdiction.