What is a SAFT and When Should You Use One?

A Simple Agreement for Future Tokens (SAFT) is a specialized investment contract designed for blockchain startups raising capital before their tokens are fully developed or functional. As a California attorney with over a decade of experience in technology law, I’ve guided numerous founders through this complex terrain.

SAFTs serve as an intermediate step in token fundraising – they allow developers to raise money from accredited investors while delaying the actual issuance of tokens until the network or platform is functional. This approach helps navigate the complicated regulatory landscape surrounding cryptocurrency offerings, particularly with respect to securities laws.

Think of a SAFT as a promise: investors provide capital today in exchange for tokens that will be delivered once the network launches. Unlike an Initial Coin Offering (ICO) where tokens are sold directly to purchasers, a SAFT is the sale of a right to receive tokens in the future when certain conditions are met.

Legal Framework and Compliance Requirements

The legal foundation of SAFTs is centered around the concept that while the SAFT itself is a security (and thus subject to securities regulations), the tokens that will eventually be delivered might not be classified as securities if they have genuine utility when the network launches.

When using my SAFT Generator, you need to understand several key regulatory considerations:

1. Securities Law Compliance: SAFTs are typically offered under Rule 506(c) of Regulation D, which allows general solicitation but requires all investors to be verified as accredited. This means investors must meet specific income or net worth thresholds ($200,000+ annual income for individuals or $1 million+ net worth excluding primary residence).
2. The Howey Test: Courts and the SEC use this test to determine whether a transaction qualifies as an “investment contract” (and thus a security). A transaction is considered a security if it involves an investment of money in a common enterprise with the expectation of profits derived primarily from the efforts of others.
3. Token Functionality: For the eventual tokens to potentially avoid classification as securities, they should have genuine utility within a functioning network. The more the tokens serve a consumptive purpose rather than an investment purpose, the stronger the argument they aren’t securities.
4. Jurisdictional Considerations: Different countries have vastly different approaches to regulating crypto assets. The SAFT Generator allows you to specify jurisdictional restrictions to help comply with various regulatory regimes.

Recent court cases have further clarified the regulatory landscape. In cases involving companies like Kik Interactive and Telegram, courts determined that using a two-stage SAFT structure did not exempt the token offerings from securities laws. The courts viewed the private sales through SAFTs and subsequent public offerings as parts of a single transaction.

How to Use the SAFT Generator

My SAFT Generator streamlines the process of creating a customized SAFT agreement through six intuitive sections:

1. Company Information

Start by entering your company’s legal details, including name, type (corporation, LLC, etc.), jurisdiction of incorporation, and authorized signatory information. Choose your jurisdiction carefully—Delaware and Wyoming offer favorable corporate laws for blockchain companies, while offshore jurisdictions may provide different regulatory flexibility.

2. Offering Details

Specify your funding goals, including the total amount being raised, the currency (USD, crypto, etc.), and the closing date for the offering. Be realistic about your funding needs—raising too much too early can create unrealistic expectations.

3. Token Information

Detail your token’s characteristics: name, symbol, total supply, distribution model, and technical standard (ERC-20, etc.). The token distribution model you select has significant implications for the token’s economics and potential regulatory treatment.

4. Investment Terms

Define the financial terms of the agreement, including discount rates (typically 20-40%), valuation caps, interest rates, and maturity dates. These terms determine the economics of your SAFT and are crucial for investor negotiations.

5. Regulatory Compliance

Select the appropriate regulatory framework for your offering, including investor accreditation requirements and jurisdictional restrictions. This section helps ensure your SAFT complies with applicable securities laws.

6. Closing Provisions

Finalize your agreement with provisions for governing law, dispute resolution methods, confidentiality terms, and optional right-to-cancel clauses. These seemingly technical provisions can significantly impact your rights if disputes arise later.

As you complete each section, the live preview updates in real-time, highlighting your changes so you can see exactly how your selections affect the final document.

Strategic Considerations and Risk Factors

Creating a SAFT is not merely a legal exercise but a strategic business decision. Here are some important factors to consider:

Benefits of Using SAFTs

1. Early Capital Access: SAFTs provide much-needed funding for development before a functional network exists.
2. Regulatory Navigation: When properly structured, SAFTs provide a framework for complying with securities regulations during your fundraising phase.
3. Investor Relations: SAFTs can attract sophisticated investors who understand the risks and potential of blockchain projects, often bringing valuable connections and expertise beyond just capital.
4. Non-Dilutive Funding: Unlike equity financing, token sales don’t dilute founder ownership in the company itself.

Potential Risks and Challenges

1. Regulatory Uncertainty: The regulatory landscape for cryptocurrencies continues to evolve. What complies today might not tomorrow.
2. Legal Classification of Tokens: Despite using a SAFT, there’s no guarantee the SEC or courts won’t later determine your tokens are securities, even after network launch.
3. Investor Expectations: Accredited investors funding SAFTs often have high expectations for returns, creating pressure for rapid token appreciation.
4. Disclosure Requirements: SAFTs require comprehensive disclosures about your business, token functionality, and risks.
5. Recent Enforcement Actions: The SEC has aggressively pursued enforcement actions against token issuers, even those using SAFT structures. Recent cases demonstrate that courts tend to look at the “economic reality” of transactions rather than their form.

Recent Developments and Legal Landscape

The regulatory environment continues to evolve rapidly. As of 2025, several important developments have shaped how SAFTs should be approached:

1. SEC Enforcement: The SEC has maintained an aggressive stance toward crypto assets, bringing numerous enforcement actions against token issuers. In fiscal year 2024, the SEC obtained orders for $8.2 billion in financial remedies, with cryptocurrency cases representing a significant portion.
2. ETF Approvals: While the SEC approved spot Bitcoin ETFs in January 2024 and Ethereum ETFs in May 2024, this has not substantially changed their approach to regulating token offerings through SAFTs.
3. Court Decisions: Federal courts have generally supported the SEC’s position that most token offerings involve securities, even when using SAFT structures. The courts have focused on the “economic reality” of transactions rather than their form.
4. Global Regulatory Divergence: While the U.S. has taken a restrictive approach, other jurisdictions have developed more nuanced frameworks. The EU’s Markets in Crypto-Assets (MiCA) regulation provides a comprehensive framework that might influence U.S. policy over time.

Best Practices for Implementing a SAFT

To maximize your chances of successful compliance while using my SAFT Generator:

1. Consult With Legal Counsel: While my generator provides a solid starting point, always have your final SAFT reviewed by an attorney experienced in both securities law and blockchain technology.
2. Verify Investor Accreditation: Implement a robust process for verifying that all investors meet accreditation requirements under Rule 506(c).
3. Document Token Utility: Clearly document how your tokens will have genuine utility within your network or platform once launched.
4. Be Transparent About Risks: Provide comprehensive risk disclosures to potential investors, including regulatory uncertainties.
5. Plan for Network Launch: Develop a clear roadmap for when and how your network will become functional enough to distribute tokens.
6. Consider International Implications: If you have international investors, be aware of the securities laws in their jurisdictions.
7. Maintain Proper Records: Keep detailed records of all offering materials, investor communications, and verification procedures.

Frequently Asked Questions

Is a SAFT the right choice for my blockchain project?

A SAFT works best for projects that will genuinely benefit from a token economy but need time to develop the underlying technology. If your token doesn’t serve a real utility purpose within your network, a SAFT may not be appropriate. Consider whether your business truly needs a token or if traditional equity financing might be better suited to your goals.

Can I sell tokens to non-accredited investors using a SAFT?

No. SAFTs are specifically designed for accredited investors. Under Rule 506(c), all investors must be verified as accredited before they can participate. If you want to include non-accredited investors, you’ll need a different fundraising approach, possibly under different exemptions with their own requirements.

What happens if my network never launches?

Most SAFTs include provisions for what happens in a “dissolution event” – usually requiring the return of a portion of remaining funds to investors. However, there’s typically no guarantee investors will recover their full investment. This is why proper risk disclosure is essential.

How does a SAFT differ from a SAFE (Simple Agreement for Future Equity)?

While both are investment vehicles for early-stage funding, a SAFE converts to equity in the company, while a SAFT converts to tokens. SAFTs are specifically designed for blockchain projects, whereas SAFEs are used by startups across all industries. The regulatory considerations are also quite different.

Can I modify the SAFT template to suit my specific needs?

Yes, the SAFT Generator allows customization, but be careful about modifying key provisions that ensure regulatory compliance. Any significant modifications should be reviewed by legal counsel to ensure they don’t undermine the compliance framework or create unintended consequences.

What if regulations change after I’ve issued SAFTs?

This is a real risk in the evolving regulatory landscape. Include provisions in your SAFT that address potential regulatory changes, and consider maintaining a contingency fund to address compliance costs that might arise from new regulations. Open communication with your investors about regulatory developments is also essential.

How do I determine the right discount rate for my SAFT?

Discount rates typically range from 20% to 40%, reflecting the early-stage risk investors are taking. The appropriate rate depends on several factors, including your project’s development stage, funding history, team credentials, and market conditions. Consider what comparable projects are offering while ensuring the rate provides sufficient incentive without undermining your token economics.

For personalized guidance on structuring your token offering and navigating the complex legal landscape of blockchain financing, I invite you to schedule a consultation. My experience with numerous blockchain startups allows me to provide tailored advice for your specific situation and help you avoid common pitfalls in this rapidly evolving field.

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