Source: https://es.scribd.com/document/360469179/The-SAFT-Project-Whitepaper
Timestamp: 2019-04-24 16:44:18+00:00

Document:
launched, as a means to disseminate some fraction of the token supply to early users.
development of the network and its launch.
selling securities, and may have failed to comply with several U.S. laws.
Projecta forum for discussion and development of the SAFT framework.
presumably for a profit, and so may the developers.
tokens, however, are already functional, and need not be securities under the Howey test.
valuable contributions to developing this whitepaper.
otherwise satisfy the Howey test.
website is available at www.saftproject.com.
purposes only. Developers, purchasers, investors and any other participant in a token system should consult their own counsel.
without taking on significant enterprise risk.
been orchestrated by decentralized teams with members around the globe. Because we analyze U.S.
law, we focus on the effects of token sales on the U.S., but the policy issues we address are borderless.
whitepaper) can work to expand the legal and policy discussion beyond the U.S. perspective.
discuss securities tokens in detail.
Union Square Ventures (Aug. 8, 2016), http://www.usv.com/blog/fat-protocols.
securities token? Given the lack of infrastructure, the questions far outstrip the answers.
ground coffee or boxes of razor blades.
token presale is critical to understanding why the SAFT is a preferable alternative.
make up between 60%-80% of the total funds raised in a direct token presale.
of various direct forms of token presales.
6 Solidity is the native programming language of the Ethereum network.
closing of those sales is simply timed to occur concurrently with the public sale.
9 See 17 C.F.R. 230.501(a) for Accredited Investor standards.
tradeable, the purchasers and the entity are free to trade the tokens on any exchange that might list them.
said, the great majority of them seem, outwardly, to be working diligently toward completion.
functional tokens are ever created or sold, let alone released to the public and traded on exchanges.
who do not expect any pecuniary return in exchange.
transaction of course disclaim any obligation of the foundation to actually deliver any tokens to the donor.
executing the direct token presale from an offshore entity. They may believe that they can avoid U.S.
offer certain tax advantages under local law.
we believe that the SAFT offers a superior alternative to these perceived benefits.
its network, rarely possesses qualities that would satisfy the requirements for an investment contract.
each of the constituent parts of this test, now known as the Howey test.
end, see the final section of this whitepaper on the SAFT Project.
12 The Securities Act of 1933, as amended, (the Securities Act), Section 5, 15 U.S.C. 77e(a), (c); 77d.
13 Securities Act, Section 2(a)(1), 15 U.S.C. 77b(a)(1).
sub nom. Gould v. Ruefenacht, 471 U.S. 701 (1985).
15 SEC v. W.J. Howey Co., 328 U.S. 293, 29899 (1946).
16 328 U.S. 293 (1946).
trends in each of the following sections, organized by prong.
can satisfy this prong.22 As a result, this prong of Howey is often met by direct token presales.
apply the vertical commonality test. There are two variations on the vertical commonality formulation.
enterprise; and (4) whether the investors money is substantially at risk because it is inadequately secured.).
20 SEC v. Shavers, No. 4:13-CV-416, 2014 WL 12622292, at *5 (E.D. Tex. Aug. 26, 2014).
21 SEC v. Glenn W. Turner Enters., 474 F.2d 476, 482 (1973).
principal . . . . (internal quotation marks and citations omitted)).
23 See, e.g., SEC v. SG Ltd., 265 F.3d 42, 49-50 (1st Cir. 2001).
24 Revak v. SEC Realty Corp., 18 F.3d 81, 87 (2d Cir. 1994).
Corp., 698 F.2d 1121, 1124 (11th Cir. 1983), revd on reh'g on other grounds, 730 F.2d 1403 (11th Cir. 1984).
standard (among other prongs) because those who take meaningful action profit differently than those who do not.
as a public good, slowly and expectedly entering insolvency as it does so.
token sales to sales of already-functional tokens.
28 United Hous. Found. v Forman, 421 U.S. 837, 854-55 (1975).
n.13 (distinguishing Belmont Reid & Co.).
30 See Forman, 421 U.S. at 852-53.
31 See supra note 28 for case citation.
consumption versus acquiring an interest in a profit-making venture. E.g., Landreth Timber Co. v. Landreth, 471 U.S.
purchases a commodity for personal use or consumption.); Bronstein v. Bronstein, 407 F. Supp. 925, 930 (E.D. Pa.
[and for] the purpose of acquiring an interest in a profit-making venture).
33 SEC v. Glenn W. Turner Enters., 474 F.2d 476, 482 (9th Cir. 1973).
understanding of the rights, powers (and, sometimes, obligations) attendant to the token in question.
issue in the following sections, through the lens of token functionality.
staking mechanisms, currencies, etc. Their consumptive desires predominate their profit-seeking motives.
utility tokens really be treated similarly?
improvement on an already-functional token is an essential managerial effort.
appreciation resulting from the development of the initial investment).
35 638 F.2d 77, 79 (9th Cir.1980).
36 794 F.2d 1388, 1391 (9th Cir. 1986).
essential managerial efforts of others.
fabricating graphics chips or the announcement of the next installment of a popular video game franchise.
predominate the efforts of the seller in updating the tokens functionality.
that clearly predominates. We take this up in the next section.
38 We are not aware of any such token. This hypothetical example is for illustrative purposes only.
39 See supra note 38.
40 See supra note 38.
and technical efforts of the developers to realize value from their tokens.
secondary market price of an already-functional utility token is determined by a great variety of factors.
still required to deliver functionality, and therefore profit.
functional token, that expectation is very likely to be predominantly from the efforts of others.
in more detail below, never results in a pre-functional utility token.
official pronouncement on token sales. As such, it bears inclusion in this whitepaper.
rata according to their DAO Token holdings. The DAO Tokens operated like limited partnership interests.
They were, using the terminology of this whitepaper, securities tokens.
The DAO (July 25, 2017), available at https://www.sec.gov/litigation/investreport/34-81207.pdf.
further guidance from the SEC on the issues addressed herein.
characterized as unlicensed money transmitting businesses.
between the buyer and seller to effect the transaction.).
Currencies (Mar. 18, 2013) at 2-5, available at https://www.fincen.gov/sites/default/files/shared/FIN-2013-G001.pdf.
transmission laws.62 We analyze this issue in more depth in our discussion of the SAFT.
Tokens, whether CVC or other kinds of blockchain tokens, are generally treated as property for U.S.
simply make investments for their own account).
61 FIN-2013-G001 at 3 (emphasis added).
Remains Ambiguous, Coin Center (May 2017), available at https://coincenter.org/entry/aml-kyc-tokens.
digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value.
years to fully offset the income from the token sale.
burdensome regulations can cause to innovation.
often discussed. First, in a direct token presale, unaccredited investors purchase pre-functional tokens.
Thus, they take on enterprise riskthe risk that the project fails without producing a functional network.
where they satisfy both black letter law and the policy goals that drive the law.
however, in general the IRSs logic would likely extend to any token whether or not convertible.
incorporated in the United States.
enterprise risk, but when misapplied, may prevent new and innovative products from coming to market.
remedies for all token sale losses.
anyone. This will, of course, change with time, but this is a particularly salient issue for token sales today.
consumer protections, but timed to minimize their negative impacts and maximize their positive effects.
DAO Token-like arrangement, for example.
utility tokens in the case of a SAFT.
the company takes advantage of the information asymmetry between itself and the consumers regarding the product.
Spring Meeting (May 10, 2007), available at https://www.sec.gov/news/speech/2007/spch051007psa.htm#3.
not, the government decided that, for your own protection, you were restricted access to these private investments.
68 Safe Financing Documents, Y Combinator (Feb. 2016), available at https://www.ycombinator.com/documents/.
SAFT investors or by the seller.
Here is an example SAFT transaction.
Developers Inc., and secure commitments from accredited investors.
provides genuine utility to its users.
We take up each step in more detail below.
69 Other exemptions may be available depending upon the makeup of the investors, marketing methods, etc.
70 Form D is used to file a notice with the SEC of an offering of securities that qualifies as exempt under Regulation D.
72 Any tokens representing stock or otherwise associated with such an incorporation are not a part of this analysis.
the great variety of possible models will mean a great variety of potential budgetary details.
network and the token must be genuinely useful such that they are actually used on a functional network.
should fail the Howey test and fall outside the definition of a security. More on this in Step 4.
the SAFT are extinguished. The investors can achieve liquidity in their investment and Developers Inc.
set forth in the above section on already-functional utility tokens, this should not endanger the model.
74 Indeed, a SAFT seller never needs to create a pre-functional utility token.
thus will be more able to generate tax losses to offset the income from the token sale).
simulate vesting periods for investors and further extend the time to triggering taxable income.
be no more efficient than a direct token presale, but also not any less efficient.
CVC as described in FIN-2013-G001.
operating losses to offset the taxable income.
event to the selling party is deferred until the transaction is closed and the underlying sold property is delivered.
for 2 years. See Section 172 of the Internal Revenue Code of 1986, as amended.
SAFT project. As they exist today, though, the SAFT is likely the best tool for managing them.
risk where they arise out of a working product.
(ii) allowing widespread public purchase when tokens present primarily product-related risk.
commitments. Following the SAFT framework would not demand that the industry discard its core values.
phenomenon. Development teams are not always or even often based in Silicon Valley, or the U.S.
This is an unequivocally positive expression of decentralized principals, and a circumstance we celebrate.
to questions around the applicability of the U.S. securities, money services or tax laws.
technologies first, and will begin to wield greater advantages over the U.S. economy and its businesses.
sales, like the SAFT framework, could provide the certainty and comfort that keeps innovators at home.
SAFT to arrive at the public token sale.
sellers in complying with any applicable securities law, for example.
happen? In at least three ways.
demonstrably exceed the effects of all other factors.
the goals of the SAFT Project is to define these limits.
81 We are not aware of any such token. This hypothetical example is for illustrative purposes only.
benefit from efforts to properly allocate risk and reward between developers, investors and network users.
the application of non-U.S. laws to the SAFT.
this whitepaper as Exhibit 1. The SAFT Project website is available at www.saftproject.com.
TREATMENT OF AN INVESTMENT IN THE SAFT AND THE RIGHTS CONTAINED THEREIN.
ANY PARTICULAR TRANSACTION AND IS MEANT AS A SPECIMEN ONLY.
[Token Name] of the Company (the Token), subject to the terms set forth below.
The Discount Rate is [100 minus the discount]%.
the Purchase Amount divided by the Discount Price.
amounts due the Purchaser pursuant to Section 1(b).
around the time of Network Launch multiplied by the Discount Rate.
Network Launch means the [_______].
to this instrument, purchased by Purchasers for the purpose of funding the Companys business operations.
partnerships; and (iv) any convertible securities issued by the Company.
identical to the instrument(s) evidencing the Subsequent SAFT.
properties and carry on its business as now conducted.
expected to have a material adverse effect on the Company.
applicable to the Company, its business or operations.
is able to bear the economic risk of such investment for an indefinite period of time.
purely to realize profits that accrue from purchasing Tokens at the Discount Price.
consent of the Company and the Purchaser.
email to the relevant address listed on the signature page, as subsequently modified by written notice.
Purchaser, in connection with a reincorporation to change the Companys domicile.
force and effect and will not be affected, prejudiced, or disturbed thereby.
Jurisdiction], without regard to the conflicts of law provisions of such jurisdiction.

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