Jan 23, 2019 Oct 21, 2019
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In the crypto world, ICOs are big money. In total, they have brought in $20 billion of funding. But, many are closed to U.S. investors because the SEC has called them securities, which is bad news. To get around this problem, a whole host of new funding models have been created. One of those is the SAFT, which we take a look at in more detail below.
SAFT stands for Simple Agreement for Future Tokens. It is a promise for future tokens. The main difference is that the tokens are not delivered immediately, like in most ICOs.
But before we get to that, first we need to explain what securities are and why they're related to fundraising in crypto.
Intangible Labs raised $125 million through a SAFT from 225 investors in March and April 2018. This is to fund a new stablecoin called Basis.
To be deemed a security, a token must fit the following criteria:
The SEC chairman Jay Clayton has called all ICOs securities. The SEC has clarified that Bitcoin is not a security and that Ethereum is not a security, even though it had an ICO. This is because they are significantly decentralized.
The SEC set up a fake website offering “Howey coins” only to inform investors that they should do more research before investing. The name is a reference to the “Howey test,” used to determine if something is a security.
ICOs clearly meet two of the main points, as there has been an investment of money which is pooled together. It is also quite likely that a lot of people getting involved are hoping to make money out of buying coins.
The fourth point is the most contentious. ICOs are often created and managed by decentralized organizations. This means there is no one person or company responsible for promoting the token. However, concerns have been raised over XRP, a token which has had an ICO and is promoted by a private company called Ripple.
I believe a token once offered in a security offering can, depending on the circumstances, later be offered in a non-securities transaction,” SEC commissioner William Hinman.
There are several concerns regarding SAFT:
We've done a whole guide on alternative funding mechanisms.
”To participate in a Security Token Offering is very similar to participating in an ICO. You can purchase tokens during the offering that you can then trade, sell, or hold,” Polymath.
ICOs and related ways of raising money for cryptocurrencies are controversial because they operate in undiscovered legal lands. The SEC may start providing guidelines which would go a long way to highlight the right way to raise funds. Until then, SAFT claims to be a safer way of raising funds. But has it taken off? Not really.
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