A Simple Agreement for Future Tokens (SAFT) is an investment contract utilized by cryptocurrency developers to raise funds from accredited investors. This agreement promises the delivery of tokens to investors once the underlying blockchain or cryptocurrency network is operational.
Key Elements of SAFT
Definition
A SAFT is a security offering tailored to comply with existing securities laws by selling cryptocurrency tokens to accredited investors before the tokens are accessible to the general public.
Purpose and Function
The primary purpose of SAFT is to allow cryptocurrency projects to raise capital without immediately issuing tokens. This helps in mitigating regulatory risks and aligning token issuance with the completion of particular technological milestones.
Historical Context
SAFTs gained prominence in the cryptocurrency ecosystem in 2017. The concept was developed as a more regulatory-compliant method for Initial Coin Offerings (ICOs), addressing concerns posed by the U.S. Securities and Exchange Commission (SEC) and other regulatory bodies.
Types of SAFT Agreements
Pre-functional SAFT
These agreements are entered into before the cryptocurrency network is fully functional, with the promise that tokens will be delivered once the network is operational.
Functional SAFT
In these agreements, tokens are issued after certain functionalities of the project have been established and demonstrated.
Regulatory Considerations
SAFTs are primarily targeted at accredited investors to comply with U.S. securities law, specifically the Regulation D and Regulation S exemptions under the Securities Act of 1933.
Compliance and Disclosure
Projects using SAFT must provide adequate disclosure about their project, technology, and the associated risks to meet the legal standards for investor protection.
Global Perspectives
While the SAFT framework addresses U.S. regulations, its adaptation in other jurisdictions varies and may require compliance with local securities laws.
Examples of SAFT Usage
- Filecoin: One of the first prominent cases, where Filecoin used a SAFT to raise $257 million for its decentralized storage network.
- Telegram Open Network (TON): Another notable example, which raised $1.7 billion through a SAFT agreement, though it later faced legal challenges from the SEC.
Comparisons
SAFT vs ICO
While both SAFT and ICO are methods for cryptocurrency projects to raise capital, SAFT is considered more compliant with securities regulations, aimed at accredited investors, whereas ICOs were often open to the public without stringent regulatory oversight.
SAFT vs SAFE (Simple Agreement for Future Equity)
The SAFT model is akin to the SAFE contract used in the startup ecosystem, differing primarily in that SAFTs are related to future token issuance, whereas SAFEs relate to future equity.
Related Terms
- Accredited Investors: Individuals or entities that meet specific financial criteria set by securities regulators, allowing them to invest in certain high-risk ventures.
- Tokens: Digital assets issued on a blockchain, often representing ownership or access to a specific utility within a platform.
- Blockchain: A decentralized ledger technology that securely records transactions across a network of computers.
FAQs
Are SAFTs legal?
Who can invest in a SAFT?
What are the risks associated with SAFTs?
References
- SAFT Project Whitepaper
- “Filecoin Raises $257 Million of ICO for Decentralized Storage Network” - CoinDesk
- “SEC Halts $1.7 Billion Unregistered Digital Token Offering by Telegram” - U.S. SEC
Summary
The Simple Agreement for Future Tokens (SAFT) represents a significant evolution in the realm of cryptocurrency investments, offering a legal framework for raising capital from accredited investors. By aligning token issuance with project milestones and regulatory requirements, SAFTs aim to bridge the gap between innovative blockchain projects and compliant financial securities.
