What is a Simple Agreement for Future Tokens (SAFT)?
Simple Agreement for Future Tokens: Cryptocurrency developers make investment contracts known as simple agreements for future tokens, or SAFTs, available to qualified investors. These tokens must abide by securities laws, as SAFTs are considered securities.
There’s more to raising money with digital currency sales than creating a blockchain. Investors want to know what they are entering into, whether there will be legal protection for them, and if the currency will be sustainable.
A business that chooses to raise capital using cryptocurrencies must abide by international, federal, and state laws, even if it may do so without utilizing a legal structure to access international financial markets. Using a SAFT is one method for doing this.
Understanding Simple Agreement for Future Tokens (SAFTs)
One kind of investment contract is a SAFT. They were developed to assist nascent cryptocurrency enterprises in raising capital without violating financial restrictions, particularly in determining whether an investment qualifies as a security.
The rate of growth of cryptocurrencies has surpassed the rate at which regulatory bodies have tackled legal issues. The Securities and Exchange Commission (SEC) didn’t give clear guidelines on whether selling tokens via an initial coin offering (ICO) or other means would be considered selling securities until 2017.
The Howey Test is one of the most significant regulatory obstacles a new cryptocurrency enterprise must overcome. In the case of Securities and Exchange Commission v. W. J. Howey Co. in 1946, the United States Supreme Court established this criteria for classifying a transaction as a security.
SAFT Guidelines
It may be easy for cryptocurrency developers to break the rules since they are unlikely to have access to financial and legal assistance and may need to be better versed in securities legislation. The creation of SAFT provides emerging businesses with an easy-to-use, low-cost framework for fundraising that complies with the law.
When a business offers a SAFT to a potential investor, it takes money from that investor; nevertheless, no currency or token is being sold, offered, or traded. Instead, the investor gets papers saying they will be granted access if a cryptocurrency or other product is developed.
Differences between a Simple Agreement for Future Equity (SAFE) and a Simple Agreement for Future Tokens (SAFT).
A Simple Agreement for Future Equity (SAFE), which allows investors to convert their cash investment into equity at a later time, is not the same as a SAFT. With the hope that there would be a market for these tokens to be sold to, developers utilized the money from the sale of SAFT to build the network and technology needed to produce a working token. After that, they give these tokens to investors.
Investors who acquire an SAFT assume the risk that they will lose their money and have no recourse if the venture fails since an SAFT is a non-debt financial instrument. Because the document only permits investors to make a cash investment in the business, they are subject to the same enterprise risk as if they had bought a SAFE.
Conclusion
- A security issued for transferring digital tokens from cryptocurrency developers to investors is a simple agreement for future tokens or SAFT.
- SAFTs were developed to facilitate fundraising for cryptocurrency projects without breaking any laws.
- A simple agreement for future equity (SAFT), which enables startup investors to convert their cash contribution into equity at a later date, is comparable to a SAFT.
