Simple Agreement for Future Tokens (SAFT)

Simple Agreement for Future Tokens (SAFT)

A Simple Agreement for Future Tokens (SAFT) is an investment contract used by cryptocurrency developers to raise early-stage capital from accredited investors in exchange for the promise of receiving tokens at a later date if specific development milestones are met. SAFTs are treated as securities under U.S. law and are typically filed with the Securities and Exchange Commission (SEC).

How a SAFT Works

• Investors provide capital now; tokens are generally not issued or functional at signing.
• The issuer agrees to deliver tokens only after triggering events or development milestones occur (e.g., mainnet launch, product functionality).
• The SAFT is a contractual right to future tokens, not immediate ownership of a token or equity.
• Issuers usually file the contract with the SEC and the filing is posted on EDGAR, but filing the SAFT does not equal a registered securities offering.

Key Elements of a SAFT Agreement

A properly drafted SAFT typically includes:
* Triggering events: concrete conditions that cause token distribution (including dissolution or termination scenarios).
* Definitions: clear definitions for terms such as “discount price,” “discount rate,” and “dissolution event.”
* Company representations: the issuer’s legal standing, licenses, powers, responsibilities, and compliance assertions.
* Investor representations: investor authority to enter the agreement, accredited status, and acknowledgment of risks.
* Miscellaneous provisions: voting rights, dividends (if any), and other contractual exclusions or governance matters.
* Signatures and filings: execution by both parties and submission of the agreement to the SEC as required.

Because precise language and securities-law compliance are essential, parties should engage an attorney experienced in securities and contract law to draft or review SAFTs.

Legal Status and Regulation

• The SEC considers SAFTs to be securities in many circumstances.
• Filing a SAFT with the SEC is often required but does not constitute registration of a securities offering.
• Developers who misunderstand securities law risk regulatory violations; careful legal structuring is necessary.

SAFT vs. SAFE vs. Token Warrant

• SAFE (Simple Agreement for Future Equity): Investors provide capital now in exchange for a future equity stake if certain conditions (e.g., financing rounds) occur. SAFE is tied to equity, not tokens.
• SAFT: Similar structure and commercial intent to a SAFE but specifically promises future tokens rather than equity.
• Token warrant: Gives the holder the right (but not the obligation) to purchase cryptocurrency at a preset price and date. Warrants are different from SAFTs because they are optional purchase rights rather than a promise to deliver tokens upon milestones.

Risks and Investor Suitability

• Highly speculative: token projects may fail, and there is typically no guaranteed recovery of invested funds.
• Liquidity: SAFTs and the future tokens they promise may be illiquid for an extended period.
• Accredited investors: SAFTs are generally marketed to accredited investors (e.g., high net worth or income thresholds).
• No equity control: SAFT holders usually do not have the same governance rights as equity holders.

Bottom Line

SAFTs provide a contractual mechanism for funding token development by promising future tokens if specific milestones are met. They resemble SAFEs in form but deliver tokens rather than equity. Given the regulatory complexity and investment risk, both issuers and purchasers should obtain experienced legal advice and carefully evaluate the project, its timeline, and the terms of the agreement before proceeding.