SAFT agreements are often used in the crypto world to raise funds for new projects. However, there is a lot of confusion surrounding these types of contracts. This article will clear up any questions you may have about SAFT agreements.
An Introduction to SAFTs
SAFT stands for Simple Agreement for Future Tokens. Essentially, a SAFT agreement allows investors to put money into an unfinished project in exchange for the right to receive tokens when the project launches.
- It’s for early-stage fundraising.
- It’s pre-issuance.
- It’s made for a token sale.
SAFT agreements are often used by startups planning to launch a new cryptocurrency or token. The funds raised through a SAFT agreement are used to finance the project’s development.
SAFT agreements are a relatively new phenomenon, and there is still some debate about whether or not they are legal. However, many startups have used SAFT agreements to raise funds, and there have been no significant problems so far.
If you’re thinking about investing in a project using a SAFT agreement, it’s essential to do your research and understand the risks involved. Hopefully, this article can help.
Where can I find the SAFT contract?
The form can be found on The SAFT Project website https://saftproject.com
SAFT vs. SAFE
The SAFT is based on the Y Combinator Simple Agreement for Future Equity, or “SAFE,” widely used to finance early-stage companies for many years. Both the SAFE and the SAFT memorialize an exchange of investment capital in an early stage or developing company for the right to something of value in the future for the investor — preferred stock in the case of the SAFE and functional utility tokens in the case of a SAFT.
The SAFT agreement is similar to a SAFE agreement but has some key differences. First, SAFT agreements are only available to accredited investors, while SAFE agreements are available to anyone.
Second, SAFT agreements are only available for projects still in development, while SAFE agreements can be used for projects that have already been launched. Finally, SAFT agreements typically have a longer timeline than SAFE agreements, as they don’t come into effect until the project launches.
Who wrote the SAFT agreement?
The SAFT Project began through extensive research led by Protocol Labs, Cooley, AngelList, and CoinList. It’s a community-driven effort supported by lawyers, developers, and entrepreneurs involved in cryptocurrency.
Are SAFT agreements legally binding?
SAFTs are not legally binding, but they are a way to create a relationship of trust between an investor and a project. By signing a SAFT, the investor shows that they believe in the project and are willing to invest money. This can be helpful for projects that are trying to raise money.
No court, regulator, or taxing authority has yet interpreted the SAFT framework, nor can the SAFT claim the transactional history and ubiquity of the SAFE.
This includes U.S. securities laws, jurisdiction, federal laws, state law, and the SEC (U.S. securities and exchange commission).
SAFT is purely for utility tokens
One element that is often overlooked is that the SAFT is written for utility tokens.
The SAFT framework works for tokens which are not themselves independently securities. That is to say; it works for utility tokens, not securities tokens. The SAFT would have little or no beneficial effect for a DAO Token-like arrangement, for example.
How can I use a Simple Agreement for Future Tokens?
The SAFT framework is designed to comply with U.S. securities regulations and allows investors to purchase tokens before they are created or released on the blockchain. This allows investors to get in on a project early while providing some protection in case the project is unsuccessful. To use a SAFT agreement, both parties must first agree to the terms of the contract.
Once the contract is signed, the investor will send funds to the blockchain project in exchange for the right to purchase tokens at a future date.
Once the tokens are released, the investor can purchase them at the agreed-upon price. SAFT agreements are a way for investors to support early-stage blockchain projects while minimizing risk.
Is the SAFT a security?
In the U.S., the SAFT itself is security. It demands compliance with securities laws. The resulting tokens, however, are already functional and need not be securities under the Howey test. They are consumptive products and, as such, demand compliance with state and federal consumer protection laws.
As mentioned in the SAFT Project Whitepaper, the utility token by itself, once issued, imbued with genuine functionality and circulating on its network, rarely possesses qualities that would satisfy the requirements for an investment contract. Meaning it’s likely not deemed as a security.
How is a SAFT different than an IPO?
An IPO (Initial Public Offering) is a type of public offering where company shares are sold to investors.
SAFT agreements are only available to accredited investors, while anyone can participate in an IPO. SAFT agreements are also only available for projects that are still in development, while IPOs are for late-stage companies.
As such, a SAFT Agreement is not similar to an IPO, and the closest comparison would be a SAFE.
What is the difference between an ICO and a SAFT?
An ICO (Initial Coin Offering) is a type of crowdfunding where a blockchain project raises funds by selling tokens to investors. SAFT agreements are only available for projects that are still in development, while ICOs can be for projects at any stage.
SAFT agreements are also only available to accredited investors, while anyone can participate in an ICO. As such, a SAFT Agreement is not similar to an ICO.
As the SAFT agreement is written primarily for U.S. law and is not proven to be legally binding, its primary purpose is to serve as a way to formalize a partnership and create a sense of trust between the investor and the startup.
Secondly, it helps protect you as an entity against legal uncertainty. Having a SAFT agreement shows it was not unregistered security and that it was not money transmission.
The takeaway as an investor is that you must do thorough research and vetting before transferring funds.
The SAFT does not work as a safety net or a guarantee.