In recent months, more and more financial regulators are trying to clarify the industry of attracting investments through digital tokens.. First, this industry was chosen as a target by the US Securities and Exchange Commission, which did not offer specific solutions, then China and South Korea followed suit, banning ICOs in the country.
However, crypto community enthusiasts do not sit still and are looking for new ways to legalize investment.. Thus, a well-known fintech lawyer from New York, head of Cooley LLP, and specialists from Protocol Labs, Juan Benet and Jesse Clayburgh, presented an alternative fundraising model that is compatible with the legal norms of the US stock market, tax legislation and the US financial services industry.
Suntory hopes that the new model will start a conversation between lawyers, developers and investors to move the concept forward so it can be widely adopted.
How SAFT works
The main thing in understanding the SAFT model is to understand how it differs from the normal sale of tokens, and here everything is very simple: SAFT is an investment contract.
The alternative fundraising model proposed by Suntory is a modern transaction system that can significantly reduce the risks of token sellers. The development of a new structure is carried out jointly with investors, issuers of tokens and developers. Some participants are already testing the system in practice.
The model is called SAFT: Simple Agreement for Future Tokens (A simple agreement for future tokens). Obviously, the name of the new product is a play on words with a different scheme – Y Combinator SAFE (Simple Agreement for Future Equity – A simple agreement for future assets). SAFT is a contract between developers and investors.
Suntory emphasizes that they didn't have to invent anything, since SAFT was already used by token sellers as an unexplored method even before the Suntory team began to promote it.
Briefly, the SAFT mechanism is as follows:
Token-Based Centralized Network Developer Enters SAFT Written Agreement with Accredited Investors. According to SAFT, investors must pay cash to developers in exchange for the right to receive tokens after the network is ready.. Investors usually receive a discount. At this stage, developers do not issue pre-sale tokens, but they submit the necessary documents to the SEC.
The developer uses the money to develop the network. This may take months or years.. Tokens are still not issued.
After the main functionality of the network is ready, the developer creates tokens and sends them to investors who can sell tokens to the public on the open market in order to make a profit.
If desired, the developers themselves can also sell tokens to the public.
Thus, the authors of the concept do not try to circumvent securities laws, but, on the contrary, seek to use them. Since SAFT compliant tokens are securities, they are handled accordingly by the developers.. That is, when selling tokens under SAFT, they follow the rules of the securities law, similar to receiving venture capital funding.. The tokens themselves are not offered or sold, investors receive traditional paper documents, and the tokens perform purely technical functions.
Interest from investors
Some investors are already going to use the new tool to explore the possibilities of the token market, and those who plan to create platforms to connect issuers and buyers of tokens have shown interest.
For example, Pantera Capital venture investor Paul Veradittakit says that his company created its own version of SAFT and provided these results for the white paper of the project.
Describing the potential of the new development, Veradittakit says:
“SAFT is the first major step towards adding a structure and standard to token funding that reflects the position and goals of companies.”
On the other hand, the investor warns that the application of SAFT will be limited. The model is mainly focused on projects that raise money for tokens that are not securities.
On the other hand, Erik Syvertse, Principal Consultant at AngelList, notes that SAFT is in no way restricting other types of tokens that may eventually be listed on CoinList, a new entity the company is creating in partnership with Protocol. Labs to conduct relevant ICOs.
“We are open to different types of projects, regardless of the use of SAFT, ” he says.
As for what is happening now, everything will be decided by the community. In the end, the scheme will only be as useful as it is accepted by industry participants.
Undoubtedly, there are still problems that can prevent its application.. First of all, it is that SAFT lacks the promises inherent in the ICO model, namely, the “democratization” of venture capital by opening deals to global retail investors.
While more than $2 billion has been raised through ICOs to date, the document states that 60-80% of these funds came from accredited investors.
Suntory emphasizes that the SAFT model is a way of operating under existing legislation without any legal changes. Here, the white paper highlights the benefits of the model, as SAFT can reduce VC risk and democratize access through an active secondary market.
“SAFT may not let anyone buy the next bitcoin for 30 cents, but they still get it for $1 or $2, ” Suntory says.