Introduction

Token sales as a form of financing for software development projects came to life in 2013 [https://saft-project.org/]. Later in the same year, YCombinator introduced Simple Agreements for Future Equity [https://www.ycombinator.com/documents]. Although seemingly unrelated, these two new phenomena were destined to be synthesized. As a result, Simple Agreements on Future Tokens (SAFTs) were created.

The main ideas behind SAFE and SAFT are the same:

• Both allow startups to “close with an investor as soon as both parties are ready to sign and the investor is ready to wire money, instead of trying to coordinate a single close with all investors simultaneously”. [https://www.ycombinator.com/documents]
• “As a flexible, one-document security without numerous terms to negotiate,…“ both SAFE and SAFT “save startups and investors money in legal fees and reduce the time spent negotiating the terms of the investment. Startups and investors will usually only have to negotiate one item: the valuation cap. Because a safe has no expiration or maturity date, there should be no time or money spent on extending maturity dates, revising interest rates, or the like”. [https://www.ycombinator.com/documents].
• SAFT-Project.org maintains standard forms for SAFT:

Using SAFT, new crypto projects can obtain financing in exchange for the promise of delivering a predefined value or number of tokens to investors if and when the token issuance event occurs. There are a few considerations relevant to the analysis of SAFTs:

1. SAFTs typically do not provide for any remedies in case no token event ever occurs. However, when plans to issue tokens subsequently change, investors often agree on some replacement or compensation of the original award via other tokens or issuance of another financial instrument.
2. Usually, SAFT is issued before the token generation event. It means there is typically no active market for SAFT-related assets. Hence, on the investor’s side, the fair value of SAFT-related assets is not readily determinable.
3. However, some SAFTs may contain a vesting period that results in the release of tokens to the investor not at the time of token generation but later following the vesting schedule. Another form of vesting occurs when tokens are transferred to the investor at the token generation date but remain locked for a certain period with unlocking based on the predefined schedule.

• Some examples of real-life SAFT terms can be found on EDGAR:

Two sides to accounting for SAFTs are (1) the Developer’s Accounting and (2) the Investor’s Accounting.

(1) the Developer’s Accounting. There have been some discussions around accounting for SAFT by developers that we can find in SEC correspondence with YouNow, Inc. and Blockstack, Inc. This is a topic for a separate conversation that we will cover as part of our guidance on the web3.0 software development projects.

(2) the Investor’s Accounting. There is no specialized guidance available for investor accounting for SAFT. It is also notable that accounting for SAFE notes (which served as a prototype for SAFT) is subject to extensive debates with different positions taken on this question by SEC and FASB.

So, what is SAFT for investors?

Analysis

• Question: Is SAFT a Derivative?

• Question: Is SAFT an Investment in Equity Security?

• Question: Is SAFT a Security?

• Question: Is SAFT an Investment in Debt Security?

• Question: Is SAFT a Loan/Receivable?

• Question: What is the appropriate presentation of SAFT on the Company’s balance sheet?

• Question: How the SAFT should be measured?

• Question: What is the cost basis of tokens received?

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