# Understanding SAFTs: Future Token Agreements in Cryptocurrency

## What Is a Simple Agreement for Future Tokens (SAFT)?

A simple agreement for future tokens (SAFT) is an investment contract offered by cryptocurrency developers to accredited investors. Because SAFTs are considered a security instrument, they must be filed with the Securities and Exchange Commission.

Filing the contract does not register securities with the SEC; it merely announces that there is an agreement between the developers seeking funding and investors' capital in exchange for tokens when certain development conditions are met. SAFTs are risky investments because the projects are very speculative.

### Key Takeaways

*   SAFTs (Simple Agreements for Future Tokens) are investment contracts that allow developers to exchange future digital tokens for capital, which is useful for early-stage project funding.
*   These contracts are a way for cryptocurrency ventures to raise funds while staying compliant with regulatory requirements set by the SEC, although they don't register as securities.
*   Investors purchase SAFTs with the expectation of receiving tokens only if the project reaches certain developmental milestones, making these investments risky.
*   The SAFT structure is similar to a Simple Agreement for Future Equity (SAFE), designed for equity investments, where returns depend on project success.
*   While intended to simplify and reduce legal expenses, SAFTs still require crucial legal components and an attorney for proper contract handling to ensure adherence to securities law.

## How SAFTs Facilitate Cryptocurrency Funding

A SAFT is an investment contract. They were created as a way to help new cryptocurrency ventures raise money without breaking financial regulations, specifically, regulations that govern when an investment is considered a [security](https://www.investopedia.com/terms/s/security.asp). Essentially, it's designed as a way to receive funding while bypassing regulatory registration requirements.

It's important to understand that the tokens are generally not issued or functional at the time the contract is signed. Investors receive their tokens after the issuer achieves specific goals.

When a company sells an investor a SAFT, it is accepting funds from that investor but does not transfer a coin or token. Instead, the investor receives documentation indicating that they will be given tokens if the project is successful.

Cryptocurrency developers may not know securities law well and might lack legal support, making it easy to break regulations. The development of SAFT creates a simple, inexpensive framework that new ventures can use to raise funds while remaining legally compliant.  

## Key Elements of a SAFT Agreement

SAFTs must include specific language and definitions in each contract:

*   **Events**: The contract must list events that trigger token distribution, including dissolution and termination actions.
*   **Definitions**: There must be definitions for each term used in the contract, such as a dissolution event, discount price, discount rate, or any other terms that might be confused or interpreted differently.
*   **Company representations**: The developers must state where they are licensed, their standing in that jurisdiction, and any powers and authorities they might have. Also, they must state their responsibilities under the contract and their understanding of how company rules and applicable laws govern the contract.
*   **Investor representations**: The purchaser must acknowledge 1) their authority to agree to the contract, 2) that they meet the criteria to purchase the security, and 3) hold themselves responsible for the decision to do so.
*   **Miscellaneous**: Any other conditions applicable to the contract, such as if the purchaser will receive any voting rights and dividends or if there are circumstances not governed by the contract.

Both parties must sign the contract, which is then submitted to the SEC, which posts it in [EDGAR](https://www.sec.gov/edgar/search-and-access).

> **Important**
>
> Because of the language needed and the importance of what must be included in these contracts, it is essential to have an attorney familiar with securities and contract law to help draft and oversee their preparation.

## Comparing SAFTs and SAFEs: What You Need to Know

[A Simple Agreement for Future Equity (SAFE)](https://www.investopedia.com/simple-agreement-for-future-equity-8414773) allows investors who put cash [into a startup](https://www.investopedia.com/terms/s/startup-capital.asp) to convert that stake into equity at a later date—as long as specific conditions are met. For example, the company that received funds from the investor might specify in the contract that it must achieve specific financial goals before it issues the equity.

SAFTs are the same—developers use funds raised from the SAFT to develop the network and technology required to create a functional token. They then provide these tokens to investors if conditions are met.

Just like a SAFE, an SAFT is a [non-debt financial instrument](https://www.investopedia.com/terms/d/debtinstrument.asp). Those who invest in an SAFT face the possibility of losing their money and having no recourse if the venture fails. The contract only allows investors to take a financial stake in the venture, meaning that they are exposed to the same enterprise risk as if they had invested in an SAFE.

## What Is the Difference Between an SAFE and SAFT?

An SAFT is an investment contract between investors who provide capital and developers who issue the tokens after specific conditions are met. An SAFE is a contract where investors provide capital in exchange for equity in a company at a future date.

## Is an SAFT a Security?

The Simple Agreement for Future Tokens is a written contract between the developers and purchasers. It is considered a security instrument by the SEC.

## What's the Difference Between a Token Warrant and an SAFT?

A [warrant](https://www.investopedia.com/ask/answers/08/stock-option-warrant.asp) is an investing instrument that gives the purchaser the right but not the obligation to purchase an underlying asset from the issuer at a specific price and date. A token warrant is an instrument that gives the purchaser the right (but no obligation) to purchase cryptocurrency at a specified date and price from the issuer.

## The Bottom Line

A Simple Agreement for Future Tokens is a contract between a [blockchain](https://www.investopedia.com/terms/b/blockchain.asp) developer and a buyer, who contributes a certain amount of capital for the promise of an equal amount of tokens when the project meets specific goals. An SAFT is similar to a SAFE, which is for equity.

SAFTs are typically for accredited investors with over $1 million in net worth or $200,000 annual income. They can be risky investments because there are no guarantees that the company developing the token will succeed, and there is no way for the investor to recoup any losses. Additionally, these filings are not the same as a registered security offering.

_The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our [warranty and liability disclaimer](https://www.google.com/url?q=https://www.investopedia.com/legal-4768893%23toc-warranty-and-liability-disclaimer&sa=D&source=editors&ust=1702480474764778&usg=AOvVaw3zUj13x50MeuTEWu98jRl7) for more info. As of the date this article was written, the author does not own cryptocurrency._