A Simple Agreement for Future Token (SAFT) is a contractual agreement at the time of launch of a token creating ownership rights for token investors at a future date.
A SAFT is an investment contract that guarantees an eventual transfer of ownership of crypto tokens from developers to investors. Through the use of the SAFT, which is regulated financial security, finances can be arranged before the token’s launch while giving future ownership rights to SAFT holders. Included within the contract is the precise contribution of the investor, as well as the amount of discounted tokens that would be made available to them. In addition, the contract would also explicitly state the future date upon which the transfer of cryptocurrencies will be executed.
SAFTs are often mistaken for initial coin offerings (ICOs)
, which is a more mainstream form of token financing. However, unlike ICOs, SAFTs are directed primarily to accredited investors instead of public users on a launchpad. As a result of this setup, the general public is restricted from having access to the security, and SAFT holders would need to meet specific criteria in terms of income, experience, net worth, etc. This points toward the exclusivity that is intrinsic to these agreements and how they essentially guarantee ownership rights to their holders. This setup allows financial institutions such as investment banks or hedge funds to participate in token financing without having to worry about regulatory concerns. On the other hand, cryptocurrency developers, through SAFTs, have the benefit of accessing financing mechanisms that are linked to mainstream financial channels. The way SAFT is structured, it could ideally be implemented to jumpstart development on a cryptocurrency before its ICO is initiated after it is shown to have potential.
Similarly, SAFTs hold core distinctions to cryptocurrencies themselves because they are regulated. Tokens are technically not classified as securities, given that their existence on the blockchain overrides governmental jurisdiction. SAFTs are entirely in compliance with the regulatory and legal framework of the particular jurisdiction, as it is a security tradeable within the mainstream financial system. With its unique characteristics, SAFT bridges the world of blockchain to that of mainstream financial institutions and thus occupies a unique space in the broader dimension of tokenomics
However, it is important to point out that SAFT is a conventional contractual agreement and, therefore, not a blockchain-embedded smart contract
. As a result, it does not hold the core characteristics of self-execution or immutability. However, despite these gaps, SAFTs can be enforced in a court of law, given that it falls within legal and regulatory jurisdiction.