Simple Agreement for Future Token (SAFT) is a legal framework used in the cryptocurrency and blockchain industry to facilitate fundraising for blockchain projects. It is a contractual agreement between accredited investors and blockchain developers, allowing investors to provide funding in exchange for the right to receive tokens at a future date, typically after the network or platform is operational. SAFTs aim to comply with securities regulations by deferring the issuance of tokens until they are functional and no longer considered securities under applicable laws.
What Is Simple Agreement for Future Token (SAFT)?
A Simple Agreement for Future Token (SAFT) is a legal instrument modeled after the Simple Agreement for Future Equity (SAFE) used in venture capital. It is specifically designed for the blockchain and cryptocurrency industry to raise funds while adhering to regulatory requirements. The SAFT framework allows developers to sell rights to future tokens to accredited investors, with the understanding that the tokens will be delivered once the blockchain network is operational and the tokens have utility.
The SAFT framework was introduced to address legal uncertainties surrounding Initial Coin Offerings (ICOs), which often faced scrutiny from regulators for potentially violating securities laws. By structuring token sales through a SAFT, projects aim to reduce the risk of regulatory non-compliance.
Who Uses Simple Agreement for Future Token (SAFT)?
SAFTs are primarily used by blockchain startups and developers seeking to raise capital for their projects. These entities use SAFTs to attract funding from accredited investors, such as venture capital firms, institutional investors, and high-net-worth individuals.
Accredited investors are the primary participants in SAFT agreements because they meet specific financial criteria set by regulators, such as the U.S. Securities and Exchange Commission (SEC). This ensures that the investors involved are financially sophisticated and capable of bearing the risks associated with early-stage blockchain projects.
When Was Simple Agreement for Future Token (SAFT) Introduced?
The SAFT framework was introduced in October 2017 through a whitepaper titled “The SAFT Project: Toward a Compliant Token Sale Framework.” The whitepaper was authored by legal experts and blockchain advocates, including Marco Santori, who sought to create a standardized approach to token sales that would align with existing securities laws.
The introduction of SAFTs came during the height of the ICO boom, a period when many blockchain projects were raising funds through token sales without clear regulatory guidance. The SAFT framework emerged as a response to the growing need for compliance and transparency in the industry.
Where Are Simple Agreement for Future Token (SAFT) Agreements Used?
SAFT agreements are primarily used in jurisdictions with well-defined securities laws, such as the United States. They are designed to comply with regulations like the Securities Act of 1933, which governs the issuance and sale of securities in the U.S.
While SAFTs are most commonly associated with the U.S. market, they can also be used in other countries with similar regulatory frameworks. However, the applicability of SAFTs depends on the specific legal and regulatory environment of each jurisdiction.
Why Are Simple Agreement for Future Token (SAFT) Agreements Important?
SAFT agreements are important because they provide a legal and regulatory-compliant method for blockchain projects to raise capital. They help mitigate the legal risks associated with token sales by ensuring that tokens are not sold as securities before they have utility.
Key benefits of SAFT agreements include:
- Regulatory Compliance: SAFTs are designed to align with securities laws, reducing the risk of legal action from regulators.
- Investor Protection: By limiting participation to accredited investors, SAFTs ensure that participants are financially capable of handling the risks involved.
- Transparency: The SAFT framework provides a clear structure for token sales, fostering trust between developers and investors.
How Do Simple Agreement for Future Token (SAFT) Agreements Work?
SAFT agreements typically follow these steps:
- Drafting the Agreement: The blockchain project creates a SAFT document outlining the terms of the investment, including the amount of funding, the type of tokens to be issued, and the conditions for token delivery.
- Investor Participation: Accredited investors review and sign the SAFT, agreeing to provide funding in exchange for the right to receive future tokens.
- Development Phase: The blockchain project uses the funds raised to develop its platform or network.
- Token Issuance: Once the network is operational and the tokens have utility, the project delivers the tokens to investors as specified in the SAFT.
By deferring token issuance until the network is functional, SAFT agreements aim to ensure that the tokens are not classified as securities, thereby reducing regulatory risks for both the project and its investors.
