The speed at which cryptocurrencies have grown has far exceeded the speed at which regulators have tackled legal issues. It wasn`t until 2017 that the Securities and Exchange Commission (SEC) provided essential guidance as to when the sale of an initial coin offering (ICO) or other tokens is considered the sale of a security. When a company sells a SAFT to an investor, it accepts that investor`s money, sells, offers, or exchanges coins or tokens. Instead, the investor receives documents attesting that the investor has access to the creation of a cryptocurrency or other product. A SAFT is different from a Simple Agreement for Future Equity (SAFE) that allows investors who invest money in a startup to later turn that share into equity. Developers use funds from the sale of SAFT to develop the network and technology needed to create a functional token, and then make those tokens available to investors expecting there to be a market where these tokens can be sold. A SAFT is a form of investment contract. They were created to help new cryptocurrency companies raise funds without violating financial rules, especially the rules governing when an investment is considered a security. Obtaining funds through the sale of digital currency requires more than building a blockchain. Investors want to know what they have embarked on, that the currency is viable and that it is legally protected.
Since a SAFT is a non-debt financed financial instrument, investors who buy a SAFT face the possibility that they will lose their money and not resort in the event of the company`s failure. The document only allows investors to take a financial stake in the company, which means that investors are exposed to the same business risk as if they had bought a SAFE. A simple agreement for future tokens (SAFT) is an investment contract offered by investors accredited by cryptocurrency developers. It is considered a security and must therefore comply with securities rules. One of the main regulatory hurdles that a new crypto-business must overcome is the Howey test. The U.S. Supreme Court created it in 1946 in its decision on the Securities and Exchange Commission v. W. W.
J. Howey Co., and it is used to determine whether a transaction is considered a security. Since cryptocurrency developers are probably not familiar with securities law and may not have access to financial and legal advice, it can be easy for them to conflict with the rules. The development of SAFT creates a simple and inexpensive framework for new businesses to raise funds while remaining compliant with the law. While a company that collects money through cryptocurrency could circumvent the use of a formal framework to set up global financial markets, it must comply with international, federal, and state laws. One of the ways to do this is by using Simple Agreement for Future Tokens or SAFT….