Simple Agreement for Future Tokens (SAFT)
What Is a Simple Agreement for Future Tokens (SAFT)?
A simple agreement for future tokens (SAFT) is an investment contract offered by cryptocurrency engineers to accredited investors. Since SAFTs are considered securities, these tokens must comply with securities regulations.
Raising funds through the sale of digital currency requires something beyond building a blockchain. Investors need to understand what they are getting into, whether the currency will be suitable, and assuming they will be legally protected.
While a company that chooses to fund-raise through cryptocurrency could sidestep utilizing a formal structure to tap into global financial markets, it requirements to comply to international, federal, and state law. One method for doing this is by utilizing a SAFT.
Figuring out Simple Agreement for Future Tokens (SAFTs)
A SAFT is a form of an investment contract. They were made as a method for aiding new cryptocurrency ventures fund-raise without breaking financial regulations, explicitly, regulations that oversee when an investment is considered a security.
The speed at which cryptocurrencies have developed has far outperformed the speed at which regulators have resolved legal issues. It was only after 2017 that the Securities and Exchange Commission (SEC) gave substantial guidance on when the sale of a initial coin offering (ICO) or different tokens would be considered equivalent to the sale of a security.
Quite possibly of the main regulatory obstacle that a new crypto venture must pass is the Howey Test. The U.S. High Court made this in 1946 in its ruling on Securities and Exchange Commission v. W. J. Howey Co., which decides if a transaction is considered a security.
SAFT Regulations
Since cryptocurrency designers are probably not going to be knowledgeable in securities law and might not approach financial and legal counsel, it very well may be simple for them to run afoul of regulations. The development of SAFT makes a simple, modest system that new ventures can use to raise funds while remaining legally compliant.
At the point when a company sells an investor a SAFT, it is accepting funds from that investor yet doesn't sell, offer, or exchange a coin or token. All things considered, the investor gets documentation demonstrating that the investor will be given access assuming a cryptocurrency or other product is made.
Simple Agreement for Future Tokens (SAFT) versus Simple Agreement for Future Equity (SAFE)
A SAFT is not the same as a Simple Agreement for Future Equity (SAFE), which permits investors who put cash into a startup to convert that stake into equity sometime in the future. Designers use funds from the sale of SAFT to foster the network and technology required to make a functional token and afterward furnish these tokens to investors with the expectation that there will be a market to sell these tokens to.
Since a SAFT is a non-obligation financial instrument, investors who purchase a SAFT face the possibility that they will lose their money and have no recourse in the event that the venture comes up short. The document just permits investors to take a financial stake in the venture, implying that investors are presented to a similar enterprise risk as though they had purchased a SAFE.
Features
- A simple agreement for future tokens (SAFT) is a security issued for the possible transfer of digital tokens from cryptocurrency engineers to investors.
- A SAFT can measure up to a simple agreement for future equity (SAFE), which permits startup investors to convert their cash investment into equity at a point from here on out.
- SAFTs were made to help cryptocurrency ventures gather pledges without abusing regulations.
