SAFT (Crypto): Development and Legal Analysis

SAFT, or Simple Agreement for Future Tokens, is a type of crypto investment contract that cryptocurrency developers offer to accredited investors. The main feature is that the investor does not receive the tokens instantly, as, for example, in most ICOs.

Here is the briefly described mechanism of SAFT in two steps, as follows:

1. Step 1: Fundraising and Development
   The developer of a network based on tokens enters into a written SAFT with accredited investors. The SAFT states that investors are to obtain tokens once the network is complete. So, at the very beginning of the project, developers do not issue pre-sale coins to investors but submit the documents that confirm the ownership of the future tokens. Investors must pay developers beforehand and usually receive a discount.


2. Step 2: Issuing and Trading
   The developer invests the funds in expanding the project and waits until the project and platform will be developed​​. Theoretically, this may take months or years. After the main functionality of the network is ready, the developer creates tokens and sends them to investors.

Instead of trying to circumvent securities regulations, the SAFT concept's creators would like to maximize their use of them. SAFTs are securities and must comply with the securities rules, so developers should treat them accordingly.

A SAFT allows developers to sell tokens before they are issued in a blockchain. With such an agreement, they guarantee the delivery of tokens to investors when a project goes live. When distributing tokens under SAFTs, project holders should follow the rules of the securities law, in a way similar to receiving venture capital funding.

In most cases, SAFTs have certain restrictions:

• Limited to accredited investors only
  The essence of blockchain is community. The SAFT design prevents small-scale investors from supporting blockchain projects in their early stages.


• Based on the US federal laws
  Originally, SAFT architecture was designed to meet requirements established by federal laws and regulations in the United States. This might restrict the SAFT to exclusive markets and makes it potentially unlawful or invalid in some countries. Investors and developers should rely on both the US and local laws, which are often not clear.

A SAFT implementation can be difficult, especially if the parties are located in various countries. Even if you're using the SAFT agreement template, the safest course of action is to get help from qualified lawyers.

ICOs and SAFTs are distinct. With ICO, tokens are sold to investors that are chosen for a token release. A SAFT method is designed so that investors must wait for their tokens by a specific launch date.

The investment crypto requirements are also rigid. Despite this, SAFTs satisfy all regulatory criteria for the acquisition of unregistered securities.

In contrast with SAFTs, an ICO may fall short of those criteria: both investors and developers may be held accountable for the sale of assets that have not been registered.

Both SAFE (Simple Agreement for Future Equity) and SAFT (Simple Agreement for Future Tokens) share many similarities. The main difference consists of that SAFTs grant holders the right to obtain tokens rather than equity.

Simple Agreement for Future Tokens offers several benefits:

• Token Retention
  SAFTs reduce the anticipated value of tokens at some point in the future;
  
  
• Easy Fundraising
  SAFT allows developers to raise money easily and legally at the stage of a crypto project development;
  
  
• Open Market
  Attracting funds from American investors is getting so much easier in terms of legality and dealing with risks;
  
  
• Enhanced Security
  As SAFT contracts are securities that must go through a screening procedure, it makes it safer for both investors and developers.

Legal Kornet team will help to overcome all possible legal barriers considering the SAFT framework:

• Risks analysis of Simple Agreement for Future Tokens;
• Development of an agreement to change or terminate the contract;
• Participation in negotiations after the contract is created;
• Elaboration of confidentiality agreements for SAFTs;
• Preparation of standard terms of SAFT; Amending the terms of SAFT.