SAFT funding is quite simple; it is a tool to fund future tokens. SAFT itself is based on SAFE, which is a tool often used in the financial world to raise capital. In essence, SAFT is offered to investors as a source of funds for the development of a coin. When the development is done, investors are offered an agreed amount to sell during the ICO. This can usually turn out to be extremely profitable or unlucky, depending on the ICO.
Avoiding Legal Hurdles
Since no tokens are sold prior to funding, those who support SAFT argue that they are able to overcome certain legal hurdles. They argue that any tokens resulting from this development are not likely to meet the definition of a security according to the Howey Test. This is a standard created by the Supreme Court to determine whether offerings can be considered as securities.
However, it is still possible that tokens resulting from SAFT funding will still be considered as securities. This could lead to serious legal action for those involved. This will mean funders may be putting themselves up for prosecution.
In light of this, some funders will not accept funding from US backers. Instead, they will insist that all the sources of their money come from non-US citizens. This creates a few more hurdles for regulators, and is hopefully enough to keep them away. However, it is still a legally dicey situation to use SAFT.
How SAFTs Are Related to ICOs
SAFTs are simply a way for venture capitalists to adapt to the boom in ICOs. These ICOs are similar to IPOs; it is how companies raise funds from the public. In IPOs, a company will sell stock to investors, while in ICOs, companies sell tokens. After the ICO, investors can sell or hold onto the tokens.
Investors usually hope that with time, their investment will rise in value. These investors can then cash out or hold onto the tokens as an asset. The first ICO took place in 2013, but they have boomed in recent years.
SAFT Investors Invest in the Underlying Technology
In a traditional equity investment, venture capitalists have a stake in a startup succeeding. However, with SAFTs, the investors invest in the success of the technology. For an investor, the payoff is when the token rises in value.
A good example would be Bitcoin. If someone had made a SAFT investment during its development, he or she would have no doubt been paid in Bitcoins. Bitcoin has since become extremely valuable, although it did not seem like it would succeed a while back.
One downside to SAFTs is that they are still new. This means there are no best practices yet. Those who do choose to invest in them should be aware that they are taking a significant risk.
Do you think SAFTs have a future? Would you invest in SAFTs? Leave us your thoughts below.