The crypto community continues to expand with the introduction of new projects regularly. New businesses are springing up to offer their products and services in the growing blockchain ecosystem. The SAFT agreement helps crypto-related companies finance their operations. As a result, it is frequently referred to as an alternative to an Initial Coin Offering (ICO) .
SAFT stands for Simple Agreement for Future Tokens. It is an investment agreement between accredited investors and crypto developers. Under this agreement, the investors agree to finance the developers’ project in exchange for discounted tokens at a future date.
Based on specific parameters, accredited investors are legally permitted to invest in certain restricted and severely regulated securities.
It is a legal agreement. Thus it permits the projects to be funded without causing any federal or state breaches. Securities laws in the United States govern this contract. However, the tokens transferred under this arrangement are not classified as securities in the United States and cannot be compared to SAFT.
SAFT agreements compensate the authorized investors for early financing. The cryptocurrency company will issue tokens at a discount rate. The discount price is the value of a single token multiplied by the discount rate during a triggering event.
A SAFT essentially allows the company to extend the valuation of the token. Certain SAFT agreements may also have a valuation cap. Thus, when parties raise capital through a SAFT with a valuation cap, they essentially negotiate that valuation. SAFT does not need to be considered a debt on the balance sheet. However, If the company fails before the conversion of cash into tokens, it will pay the investor an equivalent amount to their capital investment before paying to its shareholders.
A few main terms need to be negotiated between both parties before signing a SAFT.
SAFT and SAFE are two separate agreements.
A Simple Agreement for Future Equity (SAFE) allows investors who put cash into a startup to convert that stake into equity later. In contrast, developers use funds from the sale of SAFT to develop the technology required to create a functional token and then provide these tokens to investors expecting to sell them at some future market.
SAFTs are frequently mistaken for Initial Coin Offerings (ICOs). A startup sells its tokens to regular, pre-approved users in an initial coin offering (ICO) on a launchpad. SAFTs, on the other hand, only work with accredited investors.
LCX has developed a fully digital and automated alternative to SAFT which is managed by a token sale manager. When an investor participates in a token sale on LCX, they do not require SAFT in order to guarantee their token returns, ensuring the completion of their investment. The investors on LCX can instantly access the tokens after investment. However, the tokens can be locked depending on the vesting terms agreed upon while buying the tokens. This new and innovative technology is revolutionizing the investing process and making investments in new projects safe and more reliable.
SAFT is the new investment vehicle compliant with the U.S security regulations. Although the agreement is quite simple and effective, it needs careful negotiation and understanding. Thus, it is better to consider it in the presence of an attorney. This way, it will be a meaningful transaction for both parties. It is a high-risk investment in the token economy and is only accessible to accredited investors. Also, it is a pretty recent development. Thus we need to see how regulators will respond to this agreement in the future.
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