SAFT: Simple Agreement For Future Token
Everyone loves acronyms, and SAFT is one of the most used ones in the WEB3 ecosystem after NFTs. Basically, it is a contract where you can offer tokens to investors that you haven’t created yet. It makes total sense to you if you are offering the token because you need funds and don’t want to lose shares at day 0; it makes sense to investors because they will have a huge advantage for the future token sale. Voila! Everyone is happy!
Actually, after the Initial Coin Offering (ICO) boom, and if you consider their legal validity is not rock solid + security laws varies in every jurisdiction, everyone needed an alternative. You had to write a whitepaper (whitepapers in most of the cases.), you needed to make your coins ready, so it was a burden for the entrepreneurs. It was exactly the same in startup investments. People were sick of NDA -> Term Sheet -> Shareholders Agreement -> General Assembly -> Stock Certificate routine, they needed something fast, they came up with SAFEs. The same here: SAFT!
In order to explain SAFTs properly, I have to deep dive into different concepts and it will require a multijurisdictional approach, that’s why this issue will be an introduction to SAFT. If you’ll want to continue on SAFTs, I will continue with a different angle for the next issue, if not, I will probably go with another topic.
What is the SAFT exactly?
As I mentioned earlier, it is a more simple way to offer future utility tokens to accredited investors. It is an investment contract under U.S laws. It came forward to become a way not to conflict with SEC’s security offering requirements. Tokens are most likely not securities, SAFT itself is most likely security.
You don’t have to be a legal entity to offer future tokens with SAFT but your investors must be accredited, investors. It is always a good idea to incorporate a company to limit legal liability.
It doesn’t work with security tokens and you will need to conduct a Howey test to be sure.
What is the Howey Test?
I really admire US courts! When they have a special case that concludes into a standard, they name it with the case name. Howey is one of those examples. Once, there was a dispute between SEC and Howey, (1946 SEC vs. W.J. Howey Co.) after the ruling, the Howey test became a national standard to differentiate securities. Still, if you want to make sure something is a security, you have to conduct the Howey test even its interpretation became modernized with the needs of modern society. In order to become security, you need to match 4 criteria:
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
How it is different from ICOs?
In order to make an Initial Coin Offering, you have to be ready in any way. You need to write several whitepapers explaining your project legally, financially, and technically. It must be aligned with security offering regulations in the chosen legal jurisdiction.
In contrast, SAFTs work more like startup investments. You’ll most likely pitch your tokens to investors. You don’t have to write a very detailed whitepaper. It is advised to consult with an attorney, but SAFTs seem like they are out of the radar of the SEC.
What you can read to deep dive into SAFTs:
What I try to follow nowadays:
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