Where Technology Meets Law
Is the SAFT (SAFE) truly safe to use for the sale of tokens?
The Simple Agreement for Future Tokens (SAFT) was specifically created and intended to be used by enterprises to sell digital tokens to investors. This legal document is modeled after the Simple Agreement for Future Equity (SAFE). And just like the SAFE, the SAFT is meant to be used in the sale of securities. More specifically, as one of the documents in a sale of future tokens to accredited investors under the Reg D.

In the SAFT, the company promises to create and issue tokens in the future in exchange for a contribution of funds made upon the execution of the agreement. Although the concept of this agreement is pretty straight forward, it had never been tested in Court or officially accepted by any authorities. Moreover, most companies that decide to use the SAFT do not even understand it; they just follow the trend and often misuse it.

The most common misconceptions about the SAFT are the following:

1. The SAFT is all I need to comply with the U.S. law.

The U.S. securities law is very complex and requires a number of documents with various disclosures to be provided to the investors rather than just one “simple agreement”. If your token is a security then its offering shall be registered with the SEC unless it falls under one of the specific exemptions. Each of the exemptions has its own rules, limitations and requirements, which significantly differ from each other. Therefore, there can be no single standard document that would cover all possible offerings of securities. The SAFT is applicable to a securities offering with very specific circumstances, which most companies do not even have. If your token is a utility token, then you do not need the SAFT because you are not selling securities and you are distributing tokens, which are ready to be used, immediately upon the completion of the ICO. The documents required for a sale of the utility tokens would be similar to those used in a sale of the digital products (ex: purchase agreement, various terms of sale and terms of use, etc.). Therefore, understanding the nature of your token is crucial in determining what legal documents must be prepared to govern the sale. In most cases, the SAFT would not be a correct document to be used at all.

2. The SAFT is required to sell tokens to the U.S. residents.

There is no legal requirement to use particularly the SAFT to sell tokens to the U.S. residents because the SAFT as a document is a very new concept, which had not been tested in any Court yet and had not been included in any regulations. Just as discussed above, different documents are required depending on the nature of your token and its offering.

3. Using the SAFT will make my token a utility.

Actually, it is opposite. The SAFT was created and intended to govern a sale of securities to the accredited investors under the Reg D exemption. If you are using the SAFT correctly, you are selling securities rather than utility tokens. Moreover, there is no single document that can make any token a utility regardless of the language you put in it. The nature of the token depends on its model (what benefit is being provided to the token holders, how tokens are being used, etc.) and the way an ICO is conducted (how tokens are being sold, what representations are being made, what is the target audience, etc.).

4. Selling to accredited investors using the SAFT will make my token compliant.

Although the SAFT can be used to sell tokens to accredited investors under the Reg D exemption, the additional documents and steps are required to fully comply with the U.S. securities law. Also, as indicated above, the SAFT is not applicable to every securities offering.

Please also keep in mind that in addition to compliance with the U.S. securities law you would need to comply with the securities law of all other jurisdictions where you are making an offering of your securities tokens. Even if the SAFT can be used in the U.S., it may not be a correct and applicable document in the other jurisdictions.

There is no magic pill or glove that fits all. Do not just blindly follow what everyone else is doing, especially when you do not understand the nature of the act.

Written by Katrina Arden
Attorney and founder of Blockchain Law Group
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