Simple Agreement for Future Tokens (SAFT)

An agreement by authorized investors to finance the crypto developers’ projects in exchange for discounted crypto tokens at a future date

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

A simple agreement for future tokens, commonly referred to as the SAFT, is a contractual investment agreement in the domain of cryptocurrencies between crypto developers and its authorized investors.

 

Simple Agreement for Future Tokens (SAFT)

 

It is a contractual investment agreement that involves the agreement of the authorized investors to finance the crypto developers’ projects in exchange for discounted crypto tokens at a future date.

The contractual agreement, SAFT, is considered a security and falls under the U.S. securities regulations. However, the tokens transferred from the blockchain developers to the investors, under the SAFT, are not securities. Hence, they do not fall under the U.S. securities regulations as do the SAFT.

 

Summary

  • A simple agreement for future tokens, commonly referred to as the SAFT, is a contractual investment agreement in the domain of cryptocurrencies between crypto developers and its authorized investors.
  • SAFTs involve the agreement of the authorized investors to finance the crypto developers’ projects in exchange for discounted crypto tokens at a future date.
  • Accredited or authorized investors are investors who are legally allowed to deal in certain restricted and heavily regulated securities (such as the SAFT) based on certain parameters.

 

Why is a Simple Agreement for Tokens Considered a Security?

The basic essence of a financial security is the act of investing with the expectation of a future return. When authorized or accredited investors invest in a crypto project, they do so with the anticipation that when the currently developing tokens are legitimized and released, these will sell for a higher price and the investor will make a good profit off of the investment.

The investment is completed via the SAFT. Satisfying the basic essence of any security, the SAFT is classified as a security and falls under the federal securities regulations.

 

How Do SAFTs Work

When an Initial Coin Offering (ICO) – the cryptocurrency equivalent to an Initial Public Offering (IPO) – is ongoing, the tokens tied to the crypto project are not immediately accessible (since the domain of cryptocurrency is a fairly new and developing one and is not entirely legitimized and legalized as of now). They are bound by legal constraints or are incomplete.

To prevent the act of investing in the crypto projects from being illegal, the SAFT is offered as the investment, instead of the actual tokens. It is where the role of SAFT comes into play. It is the investment vehicle offered when an investor wishes to invest in an ongoing cryptocurrency project.

 

Who are Authorized or Accredited Investors?

The SAFT can only be entered into between a blockchain (crypto) developer and its accredited or authorized investors. Unlike the regular financial market, the cryptocurrency industry is an up and coming one, one that is developing and is fairly new in the market. It is not entirely legalized and legitimized. Hence, investment projects related to the crypto world are not open to retail investors. They are just open to accredited or authorized investors.

Accredited or authorized investors are legally allowed to deal in certain restricted and heavily regulated securities (such as the SAFT) based on certain parameters, including satisfying certain regulatory requirements, income level, qualifications, experience, and so on.

 

Limitations of SAFTs

 

1. Excludes the retail investors/general public

The SAFT framework currently is only accessible by accredited or authorized investors. Hence, it is not open to retail investors or the general public.

 

2. Focused on U.S. federal laws

The SAFT framework is focused around U.S. federal laws and is under their regulation, limiting SAFTs to the U.S. market and not to the rest of the world. It can be deemed an illegal activity in some parts of the world, and hence is currently quite limited and restricted in nature.

 

Related Readings

CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:

  • Altcoin Guide
  • Bitcoin Mining
  • Cryptocurrency Exchanges
  • Securities and Exchange Commission (SEC)

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Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes and training program!