DEFINITION of 'Simple Agreement for Future Tokens (SAFT)'

Simple Agreement for Future Tokens (SAFT) is an investment contract offered by cryptocurrency developers to accredited investors. It is considered a security and, thus, must comply with securities regulations.

BREAKING DOWN 'Simple Agreement for Future Tokens (SAFT)'

Raising funds through the sale of a digital currency requires more than just building a blockchain: investors want to know what they are getting into and that the currency will be viable, and they will be legally protected.

While a company raising money through cryptocurrency could bypass using a formal framework, in order to tap into global financial markets, it needs to adhere to international, federal, and state law. One way to do this is by using Simple Agreement for Future Tokens, or SAFT.

Simple Agreement for Future Tokens is a form of investment contract. They were created as a way to help new cryptocurrency ventures raise money without breaking financial regulations; specifically, regulations that govern when an investment is considered a security.

The speed at which cryptocurrencies have grown has far outpaced the speed at which regulators have addressed legal issues. It wasn’t until 2017 that the Securities and Exchange Commission (SEC) provided substantial guidance on when the sale of an initial coin offering (ICO) or other tokens would be considered the same as the sale of a security.

One of the most important regulatory hurdles that a new crypto venture must pass is the Howey Test. This was created by the U.S. Supreme Court in 1946 in its ruling on Securities and Exchange Commission v. W. J. Howey Co., and is used to determine whether a transaction is considered a security.

A “security” can include notes, equities, bonds, and investment contracts, and, broadly speaking, is an investment in an enterprise with the expectation of profit. Because cryptocurrency developers are unlikely to be well-versed in securities law and may not have access to financial and legal counsel, it can be easy for them to run afoul of regulations. The development of SAFT is seen as a way to create a simple, inexpensive framework that new ventures can use to raise funds while remaining legally compliant.

When a company sells an investor a SAFT, it is accepting funds from that investor but does not sell, offer, or exchange a coin or token. Instead, the investor receives documentation indicating that, in the event that a cryptocurrency or other product is created, the investor will be given access.

An SAFT is different from a Simple Agreement for Future Equity (SAFE), which allows investors who put cash into a startup to convert that stake into equity at a later date. Developers use funds from the sale of SAFT to develop the network and technology required to create a functional token, and then provide these tokens to investors with the expectation that there will be a market to sell these tokens to.

Because a SAFT is a non-debt financial instrument, investors who purchase a SAFT face the possibility that they will lose their money and have no recourse if the venture fails. The document only allows investors to take a financial stake in the venture, meaning that investors are exposed to the same enterprise risk as if they had purchased a SAFE.

RELATED TERMS
  1. Crypto Token

    Crypto tokens are representation of a particular asset or a utility ...
  2. Unikrn

    Unikrn is the operator of an eSports betting platform that uses ...
  3. tZero

    TZero is a cryptocurrency and distributed ledger platform that ...
  4. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. ...
  5. Initial Community Offering

    An initial community offering is an initiative under which a ...
  6. Acorn Collective

    The project aims to be the first blockchain crowdfunding platform.
Related Articles
  1. Investing

    VC Fund Blockchain Capital Launching Initial Coin Offering

    Blockchain Capital will be the latest firm to launch a token for public sale via an ICO.
  2. Tech

    Equity on Ethereum: Firm Offers Real Stock Through ICO

    Not a "utility token" in sight with this (sort of) ICO.
  3. Tech

    Bitcoin Has A Regulation Problem

    Bitcoin, which has run afoul of regulators around the world, is slowly being accepted by some government agencies.
  4. Tech

    What is ERC-20 and What Does it Mean for Ethereum?

    Of all of the different token types available on Ethereum, ERC-20 has gained special prominence among developers.
  5. Tech

    Are There SEC Guidelines on ICOs?

    The SEC's Report of Investigation recently said that tokens are subject to the federal securities laws.
  6. Tech

    Already More ICOs in 2018 Than All of 2017: $6.3B

    Despite heightened regulatory risk, digital token projects have continued to gain popularity.
  7. Tech

    Top 5 Cryptocurrencies by Market Cap

    In the ever-shifting world of digital currencies, these coins and tokens have come out on top.
  8. Tech

    Billionaires Making the Shift to Cryptocurrency Investments

    More and more wealthy individuals are exploring the possibilities in the Bitcoin and cryptocurrency realm.
  9. Tech

    What Caused the Massive Cryptocurrency Correction Last Weekend?

    Last weekend saw sudden plunges in the prices of leading cryptocurrencies. Here's why they might have fallen so fast.
  10. Tech

    Why Crypto Users Need to Know: The ERC20 Standard

    ERC20 dictates the standard functions that ethereum token contracts must be able to execute.
RELATED FAQS
  1. How is venture capital different from other kinds of equity financing?

    Learn how venture capital equity financing differs from other funding options and what companies need to be aware of prior ... Read Answer >>
  2. Do joint ventures need an exit strategy?

    Understand why an exit strategy is important for a business partnership such as a joint venture, and learn the options partners ... Read Answer >>
Hot Definitions
  1. Return On Equity - ROE

    The profitability returned in direct relation to shareholders' investments is called the return on equity.
  2. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  3. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  4. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  5. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
Trading Center