Simple Agreement for Future Tokens (SAFT) is an asset used to transfer a digital asset known as a token from producers to investors. SAFT is an agreement for future assets and it does not cover initial token transfers.
SAFT is considered securities. For this reason, it must comply with all regulations made for securities. It is quite similar to the Simple Agreement for Future Equity (SAFE), which subsequently converts investor cash into shares.
What is SAFT?
Simple Agreement for Future Tokens (SAFT) is essentially an investment agreement. It helps in raising funds for emerging coin startups. While doing this, it ensures to act without violating financial regulations.
SAFT emerged because cryptocurrencies progressed much faster than legal regulations. It complies with conditions known as the Howey Test that enable an asset to be considered a security.
SAFT is used purely because of crypto regulations. Regulators such as the SEC and CFTC consider initiatives such as ICOs to be securities offerings. SAFT makes it possible to act in compliance with the said regulations.
SAFT is very popular among new entrepreneurs. The token is not considered a security because there is no initial exchange. SAFT acts as a contract and collateral, guaranteeing the transfer of crypto assets when the time comes.
Advantages of SAFT
- Efficiency: The SAFT agreement is created as a smart contract. It enters into force immediately upon the signing of both parties. It is implemented quickly as no additional validations are needed.
- Invariability: Smart contracts are created on blockchains. Blockchain-based transactions are non-reversible. After the agreement is made, it is imperative to comply with the necessary conditions.
- Profitability: The majority of new token assets add value to their value shortly after they are released. People who are early investors with SAFT make high profits when they evaluate their money at the right time.
SAFT is a two-stage process. It can be considered a standard for assets such as tokens, as it is created for investors and developers. It facilitates and provides confidence for institutional investors to participate in token sales.
Disadvantages of SAFT
- Risky: The cryptocurrency, which is the subject of the SAFT agreement, has not yet been released. What it will be worth in the future is not guaranteed. In addition, it is necessary to ensure the security of the protocols when creating a smart contract.
- Limited: Everyone can’t make a SAFT investment. Funds can only be created by accredited investors. There are certain limitations due to high financial requirements.
- Uncertainty: Digital assets within the scope of the SAFT agreement are seen as securities. However, not everything is clear in the law. Due to uncertainty, most tokens cannot reach their true potential and cannot satisfy their investors.
SAFT does not have the opportunity to resolve any legal issues. It only makes progress possible without being affected by legal regulations. It is also only valid in certain countries and may not comply with every country’s cryptocurrency regulations.
What is the difference between SAFT and ICO?
Both SAFT and ICO cover the new token transfer, but in detail, they are not the same thing. The ICO offers coins in advance, which is usually utility token. Investors reach their goals by transferring funds to buy new tokens.
SAFT, on the other hand, does not initially offer coins. It guarantees the promise to issue tokens at a later date with a legally compliant contract. When the investor deposits funds, he/she agrees to receive tokens in the future.
SAFT and ICO are methods of raising funds for new crypto startups. The difference between them is the presentation time of the token assets to be received in return for funds. Also, SAFT is only used by accredited investors. ICO, on the other hand, can be used by anyone.
What is the difference between SAFT and SAFE?
The distinction between SAFT and SAFE is very clear. First, SAFT is about crypto assets. SAFT assists investors in converting their shares into equity. Investors transfer money to the venture and then get their money’s worth.
Funds from the SAFT sale can be used to develop the token asset subject to the agreement. When the token is implemented, the token transfer is provided to the investor on the other side of the SAFT agreement. Thus, the terms of the agreement are met.
The person who chooses to invest with the SAFT agreement may face the risk of losing their money. There is no guarantee when the venture under SAFT fails. The SAFT agreement only provides the investor with a financial stake in the venture.
Who can invest in SAFT?
SAFT is an investment channel open only to accredited investors. Investments can be made by legal entities such as limited liability companies, firms such as banks, investment firms, and insurance companies. There are exceptions for individual investors, but the conditions are high.
If you want to invest individually, you must have an annual income of more than $200.000 in the last two years. If you are a married individual, this amount is $300.000. Alternatively, if the total value of your assets is $1.000.000, you can make a SAFT investment.
How does SAFT work?
SAFT is a cryptocurrency investment agreement between the parties. A blockchain organization agrees to start a project with certain qualifications. It then contracts to provide new token assets to investors in exchange for financing.
Following the SAFT agreement, investors pay in local currency. The company that develops the token, on the other hand, has to offer the token to the investor in return for the money it receives. The agreement is kept as a smart contract on the blockchain.
In theory, SAFT is slightly riskier than ICO ventures. Due to its structure, ICO offers tokens to the investor in advance and SAFT cannot do this. SAFT is an agreement that can only offer tokens in the future. Future uncertainties are risks.
There are many different opportunities to make the best use of the SAFT protocol for token sales. SAFT is a selling framework for a token with the appropriate structure. If you are going to make a SAFT agreement in the token sale, you should research the legal aspects well.
For another article about the legal design of blockchain, please read.