Back in 2017, the SEC shut down dozens of ICOs for selling unregistered securities. Projects that had raised millions faced lawsuits, refunds, and penalties. The problem? They sold tokens to the public before their networks even existed, making those tokens look a lot like traditional securities to regulators.

Enter the SAFT—a legal workaround that let crypto projects keep raising money while staying on the right side of securities law. At least, that was the idea.

A SAFT, or Simple Agreement for Future Tokens, is an investment contract between a crypto project and accredited investors. You invest money today, and in return, you get a legal promise to receive tokens later—once the network launches and those tokens actually have utility. The key difference from an ICO? SAFTs are sold only to accredited investors in a private placement, not to the general public.

Why does this matter? Because it changed how crypto projects think about fundraising. Instead of launching a token sale to anyone with an internet connection, projects could raise serious capital from institutional investors and high-net-worth individuals while staying compliant with U.S. securities regulations. The SAFT structure acknowledged that yes, you're selling a security—but you're doing it the legal way, through private placement to sophisticated investors.

How It Works

Here's the basic flow: You're a crypto project that needs funding to build your network. You create a SAFT agreement that spells out the terms—how much you're raising, what percentage of future tokens investors will receive, and when those tokens will be delivered.

You then sell these SAFTs exclusively to accredited investors—people who meet specific income or net worth thresholds set by the SEC. In the U.S., that typically means individuals earning over $200,000 annually or with a net worth exceeding $1 million. This isn't a public token sale; it's a private investment round, similar to how startups raise Series A funding.

The SAFT itself is treated as a security under the Howey Test. Investors are putting money into a common enterprise (your project) with the expectation of profits based on the efforts of others (your team building the network). That's textbook securities territory, and the SAFT framework doesn't pretend otherwise.

But here's where it gets interesting: Once your network launches and the tokens are delivered, the argument is that those tokens are no longer securities—they're functional utility tokens that power your decentralized network. Users can stake them, use them for governance, pay transaction fees, whatever your protocol needs. The tokens have transformed from investment contracts into functional network components.

The delivery usually happens through a Token Purchase Agreement (TPA) or is built into the SAFT itself. When predefined milestones are met—typically mainnet launch or a specific development stage—the project converts the SAFT into actual tokens and distributes them to investors.

Why It Matters

The SAFT framework gave crypto projects a legitimate path to raise institutional capital. Before SAFTs, your options were limited: either do an unregistered ICO and risk SEC enforcement, or try to navigate the expensive and time-consuming process of a registered securities offering. SAFTs offered a middle ground.

For investors, SAFTs provided legal clarity and downside protection that ICOs never had. You're entering a formal investment contract with defined terms, not just sending ETH to a smart contract and hoping for the best. If the project fails to deliver tokens or meet its obligations, you have legal recourse. That matters when you're writing six or seven-figure checks.

The structure also aligned incentives better. SAFT investors are typically in for the long haul—they're betting on the project's success over years, not looking to flip tokens on day one. Many SAFTs include vesting schedules or lock-up periods that prevent investors from immediately dumping tokens once they're distributed. This reduces the price volatility that plagued many ICOs, where early investors would cash out the moment tokens hit exchanges.

Projects like Filecoin, Blockstack (now Stacks), and Telegram initially used SAFTs to raise hundreds of millions. The framework became the de facto standard for serious crypto fundraising from 2017 through 2019, particularly for projects with strong technical teams and institutional backing.

The Risks and Trade-offs

But SAFTs aren't a magic solution. The biggest issue? Regulatory uncertainty never really went away. The core assumption—that tokens become non-securities once the network launches—has never been definitively tested in court. The SEC has remained frustratingly vague on when exactly a token transitions from security to utility, if ever.

Some legal experts argue that tokens from a SAFT might remain securities indefinitely, especially if the project team continues to play a central role in the network's success. If investors are still relying on your efforts to make the tokens valuable, that could still trigger the Howey Test even after launch.

For investors, you're also taking on significant execution risk. You're funding a project that doesn't exist yet, with no guarantee it will ever launch. If the team runs out of money, pivots, or simply fails to build what they promised, your SAFT could be worthless. Unlike equity in a startup, you don't own part of the company—you just have a contractual right to future tokens that might never materialize.

There's also the liquidity problem. SAFTs are illiquid investments, sometimes for years. You can't trade them on secondary markets easily, and even when you receive tokens, they might be subject to lock-ups or vesting schedules. If you need your money back, you're generally out of luck.

Finally, the SAFT model is exclusive by design. Only accredited investors can participate, which cuts out retail participants who might actually use the network. This creates a tension: you're building a decentralized network while concentrating token ownership among wealthy investors before the network even exists. That centralization can undermine the project's credibility and governance once it launches.

References

1. Cooley LLP - The SAFT Project Whitepaper - Original legal framework and analysis of SAFT structure
2. SEC Framework for Investment Contract Analysis of Digital Assets - Official SEC guidance on token securities
3. Coindesk - What is a SAFT and Why It Matters - Industry overview and case studies
4. Filecoin SAFT Documentation - Real-world example of SAFT implementation
5. Harvard Law School Forum on Corporate Governance - SAFT Analysis - Academic legal perspective
6. SEC vs Telegram Case Documents - Legal precedent for SAFT enforcement
7. Unchained Podcast - SAFT Deep Dive with Katie Haun - Practitioner insights from former federal prosecutor
8. Token Foundry - SAFT Economics and Structure - Financial mechanics and investor perspective
9. Messari Research - Evolution of Crypto Fundraising - Data and trends on SAFT usage
10. Anthony Pompliano - SAFT vs ICO Comparison - Practical breakdown for investors