A Simple Agreement for Future Tokens (SAFT) is an investment contract designed by cryptocurrency developers for accredited investors. These contracts are regarded as securities and thereby necessitate filing with the Securities and Exchange Commission (SEC).
Filing, however, does not entail the registration of the securities; it merely discloses the agreement between developers seeking funding and investors who provide capital in exchange for future tokens, contingent on the achievement of certain development milestones.
Key Takeaways
- SAFT Overview: SAFTs are security instruments filed with the SEC for the eventual transfer of digital tokens from cryptocurrency developers to early investors.
- Compliance: SAFTs facilitate fundraising for cryptocurrency ventures while complying with regulatory restrictions.
- Comparison with SAFE: A SAFT is akin to a Simple Agreement for Future Equity (SAFE), which allows startups to convert investments into equity upon meeting specific conditions.
Understanding Simple Agreement for Future Tokens (SAFTs)
A SAFT functions as an investment contract that allows new cryptocurrency ventures to raise funds without breaching financial regulations that determine when an investment is termed a security. Tokens are neither issued nor functional at the time of signing the contract. Investors receive their tokens post-achievement of pre-specified goals by the issuer.
When companies sell investors a SAFT, they accept funds without transferring any coin or token. The investors receive documentation promising tokens contingent upon the project’s success.
Considering cryptocurrency developers aren’t always well-versed in securities law, SAFTs present a straightforward, cost-effective framework for lawful fundraising.
Core Components of a SAFT
SAFTs come with essential language and definitions that should be included in each contract:
- Events: Detailed occurrences that trigger token distribution as well as conditions for dissolution and termination.
- Definitions: Explicit definitions for each term used, including dissolution events, discount price, discount rate, etc.
- Company Representations: Declarations about the company’s licensure, jurisdictional standing, and responsibilities under the contract.
- Purchaser Representations: Investors must acknowledge their authority to enter the contract, suitability to purchase the security, and their accountability for the investment decision.
- Miscellaneous: Other applicable conditions, such as voting rights, dividends, and non-contracted circumstances.
Once drafted, the contract must be signed by both parties and submitted to the SEC for publication in EDGAR.
Key Differences: SAFT vs. SAFE
[A Simple Agreement for Future Equity (SAFE)] is vital as it allows investors injecting capital into startups to convert their investment to equity later, contingent upon certain conditions. For instance, companies must meet specified milestones before equity issuance.
SAFTs mirror this process, with investors using raised funds to develop corresponding blockchain technology. They then receive tokens if developmental targets are achieved.
Both SAFT and SAFE are non-debt financial instruments, implying potential financial loss for investors if the venture fails.
ICO vs. SAFT: What’s the Difference?
An Initial Coin Offering (ICO) involves a cryptocurrency sale where investors immediately receive coins for their capital. In contrast, a Simple Agreement for Future Tokens (SAFT) is a preliminary contract assuring future token issuance upon meeting specified conditions.
What Is an SAFT Document?
An SAFT Document is a written contract considered a security instrument by the SEC.
Token Warrants vs. SAFT
A [token warrant] gives investors the right, but not the obligation, to purchase a specified amount of cryptocurrency at a predetermined price and date from the issuer, distinct from the guaranteed tokens in SAFT deals.
Conclusion
A Simple Agreement for Future Tokens (SAFT) is a contract binding cryptocurrency developers to provide tokens to investors in return for capital, subject to achieving developmental criteria. Comparatively, it is similar to a Simple Agreement for Future Equity (SAFE) which pertains to startup equity.
SAFTs commonly cater to accredited investors, bearing substantial risk since there’s no certainty in the project’s success, and thus, the possibility of financial losses prevails.
Related Terms: Simple Agreement for Future Equity (SAFE), Initial Coin Offering (ICO), Token Warrant, Blockchain.
