A contract between legitimate shareholders to support the projects of the crypto developers with a promise to receive a discount on crypto tokens in the future.
What Is a Simple Agreement for Future Tokens (SAFT)?
A Simple Agreement for Future Tokens (SAFT) is an asset contract that cryptocurrency developers sell to accredited shareholders. Given that Simple Agreement for Future Tokens (SAFT) can also be considered as a security tool, they are to be reported to the Securities and Exchange Commission (SEC).
As a practical reference or to gain further information regarding the Simple Agreement for Future Tokens (SAFT) you can read example and resources at the official SAFT Project site here, where materials, whitepapers, and sample documents are provided to aid you in a greater understanding of the format and utilisation of SAFTs in compliant token sales.
Filing the contract does not prepare the securities with the Securities and Exchange Commission (SEC), it only says that there is an agreement between the developers who want to get financial support and money from shareholders in exchange for tokens when some developmental milestones are accomplished.
Want to look more into other kinds of token sales and mechanics? Read our comprehensive Token Sales Guide.
Understanding Simple Agreement for Future Tokens (SAFTs)
A Simple Agreement for Future Tokens (SAFT) is an asset contract. They were developed as a means of assisting new cryptocurrency projects to raise finances, without violating the financial laws, in particular, those laws that define when an asset is a security. In essence it is a method of getting financed without having to register with the regulators.
The tokens are not usually issued or operable when the contract is signed. The shareholders are presented with their tokens when the issuer attains certain objectives.
By selling a Simple Agreement for Future Tokens (SAFT) to a shareholder, a company is receiving money into its accounts and not transferring a coin or a token. Rather, the shareholder is issued with a document that he or she will be issued with tokens in case the project succeeds.
Since the creators of the cryptocurrency are unlikely to be knowledgeable with securities law and might lack the financial and legal advisors, they can find it easy to violate the regulations.
The invention of Simple Agreement for Future Tokens (SAFT) provides an easy, cheap structure which new ventures may employ to finance their businesses without falling on the wrong side of the law.
Simple Agreement for Future Tokens (SAFT) allows projects to raise capital in a manner that does not violate securities laws, especially those that determine when a crypto token is classified as security. The majority of the projects do not issue tokens instantly; the shareholders are only provided with tokens when the issuer has reached predetermined goals. The Simple Agreement for Future Tokens (SAFT) structure allows companies to raise capital and provides shareholders with a legally registered right to tokens in case a project is successful.
To get a step by step overview of the token launch process you may want to check out our detailed Token Launch Article.
Components of a Simple Agreement for Future Tokens (SAFT)
Simple Agreement for Future Tokens (SAFT) is a special language and definition that must be contained (at least) in every contract:
Events: Events in the contract that define what causes the distribution of tokens. There is also a need to include dissolution and termination events and define actions.
Definitions: Each of the terms employed in the contract should have a definition, e.g. a dissolution event, discount price, discount rate, or other terms that can be misunderstood or misinterpreted.
Company representations: The developers need to mention at which jurisdiction they are licensed, their status in such jurisdiction and any powers and authorities they may possess. They are also required to declare their obligations within the contract and how they comprehend the company regulations and the relevant laws that will apply to the contract.
Shareholder representations: The buyer should take into account 1) that they have the right to enter into the contract, 2) that they have the capacity to buy the security, and 3) they are answerable to the decision to do so.
Miscellaneous: Any other terms that can be applied to the contract, whether the purchaser shall get any voting rights and dividends or whether there are some out of contract circumstances.
The contract has to be signed by both parties and submitted to the Securities and Exchange Commission (SEC) which provides it in EDGAR.
Important: Due to the language that is required and the significance of what should be covered in these contracts, it is important to have an attorney who understands the law of securities and contracts to assist in drafting and monitoring their drafting.
Interested parties can find a more detailed comparison of SAFT and SAFE agreements
How Do Simple Agreement for Future Tokens (SAFTs) Work
In case of an Initial Coin Offering (ICO) which is an equivalent of an Initial Public Offering (IPO) in the world of cryptocurrencies, the tokens associated with the cryptocurrency project are not available immediately (as the sphere of cryptocurrencies is a relatively new and evolving one and is not fully legitimised and legalised yet). They are either constrained by legal provisions or are not complete.
To control spending in crypto projects, the Simple Agreement for Future Tokens (SAFT) was developed and sold as the assets, rather than the tokens themselves. It turns into the asset vehicle that is provided when a person wants to contribute to a continuing cryptocurrency project.
Learn more about designing token sales to be regulated and compliant by reading our article on Token Sale structures.
The Learning on Simple Agreement for Future Tokens (SAFT) and Simple Agreement for Future Equity (SAFE)
A Simple Agreement of Future Equity (SAFE) is an agreement between shareholders of a startup who have spent cash in the startup, according to which the former secures the right to exchange their interest in the startup for the equity at a later time, in case specific conditions are met. As an example, the company which the shareholder provided with the money may include in the contract that it will provide the equity only after it reaches certain financial targets.
Simple Agreement for Future Tokens (SAFTs) are no different; developers raise capital via the Simple Agreement for Future Tokens (SAFT) to build the network and technology needed to make a working token. They then offer such tokens to shareholders in case conditions that exist.
A Simple Agreement for Future Tokens (SAFT), like a Simple Agreement of Future Equity (SAFE), is a non-debt financial instrument. The people who spend in Simple Agreement for Future Tokens (SAFTs) run the risk of losing their finances and having no remedy in the event that the business collapses. Shareholders are restricted to only financial interest in the venture under the contract, implying that they face the same enterprise risk as when they had spent in a Simple Agreement of Future Equity (SAFE).
What Is the Difference Between Simple Agreement of Future Equity (SAFE) and A Simple Agreement for Future Tokens (SAFT)?
A Simple Agreement for Future Tokens (SAFT) is a capital commitment between capital shareholders and developers who issue the tokens upon the completion of certain conditions. A Simple Agreement of Future Equity (SAFE) is a contract in which capital is spent by shareholders in the company in exchange for equity in the company.
Is a Simple Agreement for Future Tokens (SAFT) a Security?
The Simple Agreement for Future Tokens (SAFT) is an actual contract between the developers and buyers. The Securities and Exchange Commission (SEC) regards it as a security instrument.
What's the Difference Between a Token Warrant and a Simple Agreement for Future Tokens (SAFT)?
A warrant is a securities instrument according to which the acquirer has the right, without the duty, to buy an underlying asset from the issuer at a certain price and at a certain time. A token warrant is a security that confers a right (and not a duty) on the buyer to buy cryptocurrency on a future date and at some agreed future price with the issuer.
Who are Authorised or Accredited Shareholders?
Simple Agreement for Future Tokens (SAFT) is the agreement that can be made only between a blockchain (crypto) developer and its accredited or authorised shareholders. Contrary to the conventional financial markets, the cryptocurrency sector is emerging and unstable and is not completely legalised and legitimised. Therefore, retail shareholders cannot have access to assets projects regarding the crypto world. They are also limited to authorised or qualified shareholders.
There exists legally guaranteed categories of shareholders (in the United States called accredited shareholders), who are enjoined to exchange in some of these limited and highly regulated securities (like the SAFT) under specific conditions and parameters, which include meeting some regulatory criteria, income level, qualification, experience etc.
Limitations of Simple Agreement for Future Tokens (SAFTs)
1. Excludes the retail shareholders/general public
The current state of the Simple Agreement for Future Tokens (SAFT) framework is that it is available to accredited or authorised shareholders. Therefore it is not available to the retail shareholders or general population.
2. Focused on United States federal laws
The framework of Simple Agreement for Future Tokens (SAFT) is constructed based on the United States. federal laws and is regulated by them, restricting Simple Agreement for Future Tokens (SAFTs) to the United States market. It can be considered as an unlawful practice in some areas of the world, and therefore, the market is at present very small and confined in its scope.
Why SAFT is Relevant for Web3, B2B, Gaming, and SaaS Firms
Token Utility: Model your token launch in such a way that it does not position tokens as securities but rather with wanted utility in the network and various in-game and SaaS functionalities.
Protection and Attraction of Shareholders: Vesting, discounts and issuance based on milestones are some of the contractual terms that are enjoyed by the accredited shareholders.
Early-Stage Capital: Simple Agreement for Future Tokens (SAFTs) are unique in that they are ideal for early-stage capital financial support (pre-seed and seed rounds) since they open up early-stage financing needed to develop products and enter the market without the immediate pressure of selling to the market.
When and Why? A Simple Agreement for Future Tokens (SAFT) Exchange?
Most appropriate to: Seed or early financing.
Reason: Pre-sale capital of the token or platform when it is not available.
Timeline: The average Simple Agreement for Future Tokens (SAFT) is executed 6-12 months in advance of the token issuance.
Shareholder Type: On the restriction side, it is limited to the accredited shareholder level to meet the regulatory environment.
Utility Focus: The native token must have an obvious utility and not be a security upon launch.
Simple Agreement for Future Tokens (SAFT) Framework and Release Plan
1. Agreement Drafting
Include expert legal advice to prepare the Simple Agreement for Future Tokens (SAFT). It has to define explicitly:
Terms and amount of financing,
Anticipated amount of tokens and price,
Distribution schedule and milestones,
Technical information and token use-case,
Accredited shareholder compliance statements.
2. Shareholder Selection and Financing
Simple Agreement for Future Tokens (SAFTs) generally require the participants to be accredited shareholders, in accordance with the regulations (particularly in the United States).
Shareholders put in capital now, and obtain a property right to receive future tokens with a pre-agreed discount or share.
3. Token and Network Development
Further development of products with finances raised.
Establish an unambiguous set of rules of the token generation event (TGE) or network launch, which will result in the transfer of tokens.
4. Token Issuance
Upon the milestones or TGE, send tokens to the Simple Agreement for Future Tokens (SAFT) holders according to the agreement.
Make the transfer of tokens transparent and have strong technical security.
Strategic Benefits for C-Level Execs and Founders
Effective Capital Formation: Get money at an early stage of project development and not lose business equity.
Minimised Regulatory Friction: By formulating the issuance of tokens and financing in the form of a Simple Agreement for Future Tokens (SAFT), minimise the risk of being in violation of securities laws.
Shareholder Alignment: Restructure the early shareholders to the project milestones and value creation, and secure both sides by legal clarity.
Considerations of C-Level Executives
Regulatory Risk: Simple Agreement for Future Tokens (SAFT) will not exempt you from securities laws; continued legal counsel is obligatory.
Shareholder Relations: Transparency and open communication with potential and actual shareholders is the key to shareholder trust.
Operational Readiness: Set the launch time of tokens based on technical and product advancement schedules.
Jurisdiction Choices: Choose a jurisdiction where crypto-savvy countries have registered their company and tokens.
Timing: Market trends are capable of determining the most suitable time to sign a Simple Agreement for Future Tokens (SAFTs) and issue the token.
Simple Agreement for Future Tokens (SAFTs) provide Web3, gaming and SaaS C-level executives and founders with a flexible, compliant system to raise early-stage finances and mint tokens, and to set up their projects on a path to long-term expansion and regulatory certainty.
Advantages and Drawbacks
Advantage | Drawback |
Enables early financing | Limits participation to accredited shareholders |
Provides time to develop product/platform | Regulatory landscape remains uncertain |
Can be tailored for utility tokens | Legal/compliance costs can be significant |
Improves regulatory alignment vs. Initial Coin Offerings (ICOs) | Complex cross-jurisdictional structuring |
Actionable founders & C-Suite Tips:
Engage the lawyer early to write solid, compliant agreements.
Always communicate with anyone interested in token economics and distribution.
Prepare a complete checklist on legal, tax and compliance requirements for shareholders onboarding.
Change and/or amend the Simple Agreement for Future Tokens (SAFT) document as regulations change.
The Bottom Line
A Simple Agreement for Future Tokens is an agreement between a blockchain developer and a purchaser, where the purchaser will give a small amount of capital with the guarantee of the same amount of tokens being received when the project achieves the set objectives. A Simple Agreement for Future Tokens (SAFT) resembles a Simple Agreement of Future Equity (SAFE) which is equity.
The availability of Simple Agreement for Future Tokens (SAFTs) are typically limited to accredited shareholders (institutional shareholders or individuals with a net worth of over 1 million dollars and an income of over 200 thousand dollars a year). They may be hazardous assets since there are no guarantees that the company creating the token will be successful and no means by which the shareholder can recover their losses.
Want to bring your token sale to the next level?
The end-to-end consulting services offered by TokenMinds are customised to support Initial Coin Offerings (ICOs), Initial Exchange Offerings (IEOs), and Initial Dex Offerings (IDOs), and offer strategic planning, execution, and an international network of shareholders. Our team can guide you through the financing maze and be compliant on the regulatory front, no matter whether you are launching in Web3, gaming, or DeFi. You can make your success a reality when you start with TokenMinds to embark on your token sale process.
FAQ: SAFT-Based Token Launch for Founders and C-Level Executives
1. How do C-level executives comply when launching SAFT-type tokens?
C-level executives should make sure that they are compliant by collaborating with legal counsel specialised in crypto and securities law, make sure all holders are accredited, implement procedures with high KYC/AML standards, and monitor any changes in regulations at local and international levels so that agreements and disclosures can be revised accordingly.
2. Which are the most important risks to founders when fundraising via SAFTs at early stages?
Other major risks are regulatory risk, shareholder protection risk in case of laws changing, dilution or confusing cap tables at subsequent rounds, reliance on technical milestones, and susceptibility to changing market conditions that may impact financing or token viability.
3. Why is finalising tokenomics crucial before signing a SAFT agreement?
To ensure that the Simple Agreement for Future Tokens (SAFT) will accurately indicate the proper supply of tokens, distribution and vesting schedules, tokenomics needs to be finalised. This kind of transparency creates transparency amongst shareholders and enables regularity of regulation and prevents legal or operational issues that might occur during or after such distribution.
4. How does a Token SPV streamline regulatory and launch processes for founders?
A Token SPV (Special Purpose Vehicle) offers a special purpose legal structure to run token issuance. It can enhance regulatory compliance and efficiency in raising assets and distributions by separating token activities and core operations and streamline reporting and taxation.
5. What future developments might impact SAFT legality and adoption?
Future events include shifting interpretations by regulators, such as the Securities and Exchange Commission (SEC); new international regimes, such as the MiCA in Europe, and the courts, which have taken an interest in whether tokens are being used as a utility or are being speculated upon, and the heightened demand for standardised disclosure. All these reasons may justify or limit an expanded use of Simple Agreement for Future Tokens (SAFTs), and hence it is essential to remain legally nimble.
