Key Takeaways
- Investors fund now for future token delivery.
- SAFTs help startups raise capital without equity loss.
- Tokens issued after project milestones or token generation event.
- SAFTs comply with securities laws using accredited investors.
What is Simple Agreement for Future Tokens (SAFT)?
A Simple Agreement for Future Tokens (SAFT) is a legal contract where investors provide upfront capital to a blockchain project in exchange for the right to receive tokens at a future token generation event (TGE), such as a mainnet launch or initial coin offering (ICO). This framework helps startups raise early funding while aiming to comply with securities laws by treating the SAFT itself as a security sold only to accredited investors.
SAFTs differ from traditional equity or debt by granting rights to utility tokens rather than ownership or repayment, preserving control for project founders and aligning with evolving regulatory interpretations like safe harbor provisions.
Key Characteristics
SAFTs combine legal compliance with early-stage funding flexibility. Key features include:
- Investor Eligibility: Typically limited to accredited investors who meet regulatory standards, ensuring compliance with offerings under exemptions like Regulation D.
- Funding Mechanism: Investors provide fiat or crypto upfront, with tokens delivered only after a defined milestone such as a TGE.
- Token Rights: SAFTs confer rights to future tokens rather than equity shares like A shares, avoiding dilution of ownership.
- Lock-Up Periods: Tokens received often have vesting or cliff schedules to prevent immediate resale and help stabilize the token economy.
- Regulatory Framework: Designed to navigate complex securities laws, incorporating features like KYC/AML compliance and mechanisms to mitigate the ratchet effect in token valuation.
How It Works
SAFTs begin with accredited investors providing capital to a project, which then uses the funds to develop its platform and blockchain infrastructure without issuing tokens immediately. This staged approach helps avoid early classification of tokens as securities.
Upon a trigger event like an ICO or mainnet launch, tokens are distributed to SAFT holders according to pre-agreed terms, often including discounts or bonuses. This process ensures that investors receive utility tokens designed for the functioning platform, differentiating from speculative early sales.
Examples and Use Cases
SAFTs are used primarily in blockchain and crypto fundraising, offering benefits for both startups and investors. Examples include:
- Filecoin: Raised significant capital through SAFT agreements before launching their decentralized storage network.
- DeFi Projects: Many decentralized finance initiatives sell SAFTs to venture capital firms, providing early-stage funding ahead of public token sales.
- Airlines: While unrelated directly to tokens, companies like Delta illustrate how established firms explore crypto and blockchain investments, often through partnerships or pilot programs.
- Crypto Investment Strategies: Investors researching the best crypto investments may encounter SAFTs as a vehicle for early-stage exposure to emerging blockchain projects.
Important Considerations
While SAFTs offer a compliant path to early crypto investment, they carry risks such as project failure before token generation and regulatory uncertainty around token classification after distribution. You should conduct thorough due diligence and consider legal advice before participating.
Staying informed about evolving regulations and using reputable platforms, including vetted crypto exchanges, can help manage risks associated with SAFT investments.
Final Words
SAFTs offer a regulated way to invest early in blockchain projects by securing future tokens without immediate ownership dilution. Evaluate the terms carefully and consult with a legal or financial advisor to ensure the agreement aligns with your risk tolerance and investment goals.
Frequently Asked Questions
A SAFT is a legal contract where investors provide upfront funding to a blockchain project in exchange for the right to receive tokens later, typically after a token generation event like an ICO or mainnet launch.
Investors pay accredited funding during the SAFT stage, supporting development without immediate token issuance. Once milestones like the token generation event occur, tokens are distributed at a predefined price or discount.
SAFTs help startups raise early capital without issuing tokens right away, which aids compliance with securities laws by treating the SAFT itself as a security sold to accredited investors.
SAFTs are usually offered to accredited investors who meet specific income or net worth requirements and have undergone KYC/AML checks, ensuring regulatory compliance.
Investors gain early access to tokens at potentially lower valuations with fixed terms, while supporting project development before public token sales, potentially increasing returns.
Yes, if the project fails before the token generation event, investors might not receive tokens, and even after distribution, tokens could still be subject to regulatory scrutiny.
Unlike equity, SAFTs don't grant ownership or dilute founders' control, and unlike debt, they don’t require repayment; instead, they provide the right to future utility tokens.
Protocol Labs raised $257 million through SAFTs in 2017 for Filecoin, distributing tokens to investors after the token generation event in 2020.
