SAFT (Simple Agreement for Future Tokens) is an investment contract (Investment Contract) used by cryptocurrency projects to raise funds on a private round. This agreement sets forth the issuer's obligation to investors to transfer tokens in the future when the project is launched and starts operating. The following definition of SAFT is often cited in foreign sources: SAFT is used to make investments in future tokens as part of the development of a new project. This agreement differs from a standard ICO in the sense that tokens are offered to investors before they are actually issued on the blockchain.

It is also important to note that the agreement is strictly governed by the applicable law. In particular, it is used in the US and is subject to securities market regulation as it promises investors future profits. Therefore, only accredited investors can invest in the project under the terms of this contract in the United States.

How do SAFT work?

SAFT offers to investors an opportunity to fund projects with the promise of tokens in the future when the product/platform is fully developed and launched. In most cases, SAFT offers utility tokens, which are linked to the product/platform by functionality, rather than security tokens.

An important aspect is the execution of such an agreement, which includes the terms and conditions for the issuance and functionality of the tokens, as well as specific details regarding the number and value of tokens provided to the investor.

Prior to entering into SAFT with investors, project developers need to ensure that the document and tokens comply with the applicable law.

In what cases should SAFT be used?

SAFT is most often used in the initial stages of project funding, such as pre-seed or seed, from six months to a year before the token launch. This tool is suitable for early-stage crypto startups with the already developed tokenomics.

The agreement is an important tool for resolving token disputes between project developers and investors, providing legal protection and transparency in the capital raising process.

Main advantages of SAFT

  • Raising funds while complying with the laws. The agreement allows projects to raise funds while meeting regulatory requirements.
  • Early stage funding. SAFT is particularly useful at the seed-funding stage, when a project has not yet been launched but already needs capital for development.
  • Flexibility, transparency and customization to the project. Through the agreement, projects can attract investment while remaining within the legal framework and customizing the terms of the agreement to their needs. SAFT also helps to ensure clarity and transparency in investment terms and conditions.

SAFT Formalization

It is important to consider various aspects when adopting a SAFT, including legal nuances and regulatory compliance.

It is also necessary to properly and legally formalize the main terms of the agreement, such as Trigger Events that trigger the conversion of future tokens into real tokens; token valuation limits (ceiling) and applicable discount; and investors' rights to participate proportionally in future funding rounds. These conditions can determine the success or failure of an investment.

Because of the critical importance of negotiating such terms in SAFT, it is recommended that experienced legal counsel be involved in the transaction. GMT Legal has extensive experience in drafting such agreements, our lawyers are ready to assist at the stages of negotiation, approval and drafting of SAFT.

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