SIMPLE AGREEMENT FOR FUTURE TOKENS (SAFT) (2024)

WHAT IS A SAFT?

A security created for the prospective transfer of digital tokens from cryptocurrency producers to investors is known as a simple agreement for future tokens (SAFT). Because SAFTs are regarded as securities, they must adhere to securities regulations. A SAFT is similar to a Simple Agreement for Future Equity (SAFE), which allows startup investors to convert their cash into stock at a later date. Building a blockchain isn't enough to raise revenue through the selling of digital currency. Investors want to know what they're entering into, whether the currency will be viable, and whether they'll be protected legally.

While a company that chooses to raise funds using cryptocurrencies can avoid using a formal framework to access global financial markets, it must still follow international, federal, and state laws. Using a SAFT is one approach to accomplish this.

UNDERSTANDING SAFTs.

A SAFT is a type of investment agreement. They were intended to assist nascent bitcoin ventures in raising funds without violating financial regulations, particularly those governing whether an investment is considered a security. The rate at which cryptocurrencies have risen has far exceeded regulators' ability to resolve legal issues. The US Securities and Exchange Commission (SEC) didn't give any guidance on when selling an initial coin offering (ICO) or other tokens was deemed the same as selling a security until 2017. The Howey Test is one of the most important regulatory hurdles that a new crypto business must overcome. The Securities and Exchange Commission v. W. J. Howey Co. decision of the United States Supreme Court in 1946 established this standard for determining whether a transaction is a security.

WHAT IS THE HOWEY TEST?

The Howey Test refers to a case decided by the United States Supreme Court that determines whether a transaction qualifies as a "investment contract," and hence as a security subject to the US Securities Act of 1933 and the Securities Exchange Act of 1934's disclosure and registration requirements. An investment contract occurs if there is a "investment of money in a joint venture with a reasonable expectation of rewards to be received from the labor of others," according to the Howey Test. Any contract, scheme, or transaction must pass the test. The Howey Test is critical for investors and project backers to understand blockchain and digital currency projects. The test may reveal that certain cryptocurrencies and initial coin offerings (ICOs) fulfill the definition of an "investment contract." An investment contract is:

1. An investment of money
2. In a common enterprise
3. With the expectation of profit
4. To be derived from the efforts of others

SAFT REGULATIONS.

It's easy for cryptocurrency creators to go afoul of rules because they're unlikely to be well-versed in securities law and may lack access to financial and legal assistance. SAFT's creation provides a straightforward, low-cost platform for new companies to acquire funding while remaining legally compliant. When a corporation sells a SAFT to an investor, it accepts funds from that investor rather than selling, offering, or exchanging a coin or token. Instead, the investor receives documents showing that if a cryptocurrency or other product is established, the investor will be granted access.

SAFT vs. SAFE.

A SAFT differs from a Simple Agreement for Future Stock (SAFE), which allows cash investors to convert their ownership in a firm into equity at a later date. Developers use funds raised from the sale of SAFT to build the network and technology necessary to produce a working token, which they then sell to investors in the hopes of finding a market for them. Investors who purchase a SAFT incur the risk of losing their money and having no recourse if the business fails because it is a non-debt financial instrument.

CONCLUSION.

A simple agreement for future tokens (SAFT) is a security issued for the eventual transfer of digital tokens from cryptocurrency developers to investors. SAFTs were created to help cryptocurrency ventures fundraise without violating regulations. To regulate investing in crypto projects, the SAFT is created and offered as the investment, instead of the actual tokens. It becomes the investment vehicle offered when an investor wishes to invest in an ongoing cryptocurrency project. Only accredited or approved investors have access to the SAFT framework at this time. As a result, individual investors and the general public are not permitted to participate.