What Is a Simple Agreement for Future Tokens (SAFT)?

What Is a Simple Agreement for Future Tokens (SAFT)?

Let me explain what a Simple Agreement for Future Tokens, or SAFT, really is. It's an investment contract that cryptocurrency developers offer to accredited investors. Since SAFTs count as a security instrument, you have to file them with the Securities and Exchange Commission.

Filing doesn't mean you're registering securities with the SEC; it's just announcing an agreement where developers get funding from investors in return for tokens once certain development conditions are met. I want you to know that SAFTs are risky because these projects are highly speculative.

Key Takeaways on SAFTs

SAFTs let developers trade future digital tokens for capital, which is great for funding early-stage projects. They help cryptocurrency ventures raise money while complying with SEC rules, though they aren't registered as securities. As an investor, you buy a SAFT expecting tokens only if the project hits specific milestones, so it's a risky bet. The structure is like a Simple Agreement for Future Equity (SAFE), where returns hinge on success. Even though they're meant to simplify things and cut legal costs, SAFTs need key legal elements and an attorney to handle them right and stick to securities law.

How SAFTs Facilitate Cryptocurrency Funding

A SAFT is straightforward—it's an investment contract created to help new cryptocurrency ventures raise money without violating financial regulations, especially those defining what counts as a security. It lets you receive funding while skipping some registration requirements.

Remember, tokens usually aren't issued or working when you sign the contract. Investors get them after the issuer meets specific goals. When a company sells you a SAFT, they're taking your funds but not giving you a token right away; instead, you get documentation promising tokens if the project succeeds.

Many cryptocurrency developers aren't experts in securities law and might not have legal help, so it's easy to mess up. That's where SAFTs come in—they provide a simple, low-cost framework for raising funds legally.

Key Elements of a SAFT Agreement

Every SAFT must have specific language and definitions. It needs to list events that trigger token distribution, including things like dissolution or termination. You have to define every term clearly, such as dissolution event, discount price, discount rate, or anything that could be misinterpreted.

The developers must include company representations, stating where they're licensed, their standing in that jurisdiction, and their powers and authorities. They also need to outline their responsibilities and how company rules and laws apply. On the investor side, you must acknowledge your authority to enter the contract, that you qualify to buy the security, and that you're responsible for your decision.

There are miscellaneous conditions too, like whether you get voting rights or dividends, or any other ungoverned circumstances. Both parties sign it, and then it's submitted to the SEC for posting in EDGAR.

Because of all this required language, you absolutely need an attorney experienced in securities and contract law to draft and oversee these agreements.

Comparing SAFTs and SAFEs: What You Need to Know

A Simple Agreement for Future Equity (SAFE) lets investors put money into a startup and convert it to equity later, if conditions are met—like hitting financial goals. SAFTs work the same way: developers use the funds to build the network and tech for functional tokens, then deliver them if milestones are achieved.

Both are non-debt instruments. If you invest in a SAFT, you could lose everything without recourse if the venture fails. It gives you a financial stake, exposing you to the same risks as a SAFE.

What Is the Difference Between a SAFE and SAFT?

An SAFT is a contract where investors provide capital to developers who issue tokens later if conditions are met. A SAFE is similar but exchanges capital for future equity in a company.

Is a SAFT a Security?

Yes, the Simple Agreement for Future Tokens is a written contract between developers and purchasers, and the SEC considers it a security instrument.

What's the Difference Between a Token Warrant and a SAFT?

A warrant gives you the right, but not the obligation, to buy an underlying asset at a specific price and date. A token warrant does the same for cryptocurrency. A SAFT, though, is a direct agreement for future tokens upon milestones, not an optional purchase.

The Bottom Line

In essence, a SAFT is a contract between a blockchain developer and a buyer who puts in capital for promised tokens when the project hits goals. It's like a SAFE but for tokens instead of equity. These are usually for accredited investors with high net worth or income. They're risky since there's no guarantee of success, no way to recover losses, and they're not the same as registered securities. This is all for informational purposes—check disclaimers for more.