What Is SAFT: How A Simple Agreement for Future Equity Works?
The SAFT Project is an initiative that aims to resolve the legal issues inherent in many ICO sales. SAFT is an acronym for Simple Agreement for Future Tokens; the project was inspired by the SAFE (Simple Agreement for Future Equity) contract widely used by startup companies. The project specifically addresses “direct presales” of utility tokens, during which a currency that will eventually be integrated into some platform is sold before the platform is complete; many of these sales operate in a legal grey area. The organization's solution is the SAFT contract, which can be used to sell future tokens to investors without the legally dubious sale of pre-functional tokens.
Since its release in late 2017, the SAFT Project has received a great deal of coverage, and it is already being used by dozens of ICOs.
SAFT Project's Team
The SAFT Project's website states that it is the product of a collaboration between Protocol Labs and Cooley. Protocol Labs researches and develops network protocols and other technology, and has been responsible for several significant projects, including the IPFS protocol and the cryptocurrency Filecoin. Cooley is a law firm based in Silicon Valley that serves many of the area's tech companies, both large and small. While the SAFT Project's website includes no background information about its developers, both these organizations' websites identify their team members and describe their work; both groups are highly accomplished, and thoroughly qualified to take on such a project.
The project's website notes that its legal framework is currently only addressing U.S. laws, and thus is openly asks for interested international groups to contribute. However, as of March 2018, none seem to have answered the call.
SAFT Project's Technology
While there have been few significant legal challenges to the cryptocurrency industry as of March 2018, the SAFT Project's whitepaper notes that specifically token presales are vulnerable to them for several reasons. Most of these assets seem to meet the definition of an investment contract (as defined by a 1946 Supreme Court decision, “SEC vs. Howey”), and may thus be illegal to sell to non-accredited investors. Furthermore, many seem to entirely circumvent taxation, money service laws, and anti-money laundering regulations.
The project's proposed solution is the SAFT contract. It is a simple document that allows companies to pre-sell their utility tokens to investors in order to crowdfund their projects. The critical differences between this and a public sale is that only accredited investors are involved, and no pre-functional tokens are ever sold – only an agreement to exchange them once the platform is published.
The SAFT Project is dedicated to the open source model, and all of the organization's work is available for free on GitHub and its website.
The SAFT Project is exclusively concerned with the public presale of utility tokens that are not yet integrated onto a platform, since these often clearly pass the “Howey Test” – the definition of an investment contract set forth by the afore-mentioned Supreme Court decision. It does not address securities tokens (currencies designed explicitly as investments) or utility tokens with a finished platform; these too present unique legal challenges, but they are currently beyond the scope of the project.
While the project's aim is to improve legal security for companies offering utility token ICOs, a statement in its whitepaper serves as a reminder that even SAFT contracts remain in uncharted legal territory: “No court, regulator, or taxing authority has yet interpreted the SAFT framework.”
The SAFT Project raises interesting points about the unregulated nature of ICO sales, and its contract offers a promising solution to at least one issue faced by both companies and investors. The SAFE contract that inspired this project has been a major success, creating a secure legal environment for many startup companies, and hopefully the SAFT initiative can offer entrepreneurs the same stability. However, as the organization itself points out, it is still largely untested, and it addresses only one of many legal issues facing this rapidly developing industry.