Simple Agreement for Future Token (SAFT)

A simple agreement for future token, usually called a SAFT, is a contract under which an investor pays money to a crypto project in return for the right to receive its tokens at a later date, typically when the project's network or platform launches. The SAFT itself is treated as a security and sold only to qualified investors under an exemption from registration, while the project uses the funds to build the network.

The SAFT was proposed in 2017, during the boom in initial coin offerings, as a way to raise money while respecting US securities law. Its name and structure borrow from the simple agreement for future equity (SAFE), a common start-up funding contract. The theory behind it, that tokens become non-securities once a network is working, was later weakened by court rulings, and its use declined.

Imagine a group planning to build a members-only theme park. Before construction starts, they sell a limited number of contracts promising each buyer a set of ride tickets when the park opens. The contract is clearly an investment, so it is sold only to experienced investors under the proper rules. The idea was that once the park is open, the tickets themselves are simply tickets, not investments, and anyone could buy and use them.

Regulators and judges later looked at the whole arrangement and asked whether buyers were really hoping to use the rides or to sell the tickets for a profit. In key cases, they decided it was the second.

1. Sale. The project sells SAFTs to accredited investors, usually under an exemption such as Regulation D in the US, and files the required notices with the SEC.
2. Development. The project uses the funds to build its network or platform.
3. Delivery. Once the network is functional, the project mints tokens at a token generation event and delivers them to SAFT holders, often at a discount to the public price and subject to lock-ups or vesting.
4. Trading. Holders may then use or sell the tokens, which the project argues are now utility tokens.

The framework was published in a 2017 white paper by Protocol Labs, the developer of Filecoin, and the law firm Cooley. Filecoin raised a large sum through a SAFT sale that year, and many other projects copied the model. Supporters saw it as a responsible alternative to open ICOs, which were often sold to anyone with little disclosure. Critics, including some securities lawyers, warned from the start that a token's legal status depends on the facts of how it is sold and marketed, and that delivering tokens to investors who expected profits might not end the securities question.

Two US cases in 2020 tested these ideas:

• SEC v. Telegram. Telegram raised about 1.7 billion dollars in 2018 through purchase agreements for its planned Gram tokens, similar in structure to SAFTs. In March 2020 a federal court in New York granted the SEC a preliminary injunction, finding that the scheme as a whole, including expected resale of Grams, was likely an offering of securities. Telegram abandoned the project, agreed to return investors' money and paid a civil penalty. The network was later continued by others as TON; see Toncoin (TON).
• SEC v. Kik. In September 2020 a court ruled that Kik's 2017 sale of Kin tokens, which included a pre-sale to accredited investors using a SAFT, was an unregistered securities offering, and Kik later agreed to pay a penalty.

The courts applied the Howey test to the overall scheme rather than to each document separately. Since then, US regulatory policy towards crypto has shifted several times, and new legislation and SEC guidance have been debated, so anyone considering such structures needs current legal advice. Outside the US, similar pre-sale contracts are judged under each country's securities rules.

Projects still raise early money through token purchase agreements and token warrants, often described loosely as SAFTs, alongside equity in a development company. These are generally sold privately to funds and professional investors, as part of seed funding or later rounds. The tokens such investors receive often unlock after public trading begins, which can create selling pressure and contributes to concerns that public buyers pay far more than insiders.

• US Securities and Exchange Commission