Introduction to SAFT
The Simple Agreement for Future Tokens (SAFT) is a contractual mechanism designed for the issuance of digital tokens in the future, typically used by blockchain projects to raise funds from investors. It acknowledges the purchase of tokens that will be delivered at a later date, usually linked to a token generation event (TGE).
Legal Provisions to Strengthen SAFT
Definitions and Interpretations: Define all terms and relevant blockchain terminologies such as "Tokens," "Blockchain," "Blockchain Address," "Token Generation Event," and "Vesting Period" to avoid ambiguity.
Token Issuance and Delivery Conditions:
Specify the conditions under which tokens will be issued, including any prerequisites such as payment completion and compliance checks.
Define the consequences of failing to meet these conditions, including the potential for the agreement to be voided.
Clearly state the deadlines for token delivery and the actions to be taken if tokens are not delivered by the specified date, including any rights of the purchaser to terminate the agreement.
Specific Rights and Limitations on Tokens:
Tokens may be defined not as securities but as functional digital units that allow interaction within a protocol. The token classification influences their regulatory and legal treatment.
The SAFT should specify conditions under which tokens may be considered securities and detail the restrictions on their transferability. This includes the conditions under which tokens can be sold, resold, or transferred, potentially subject to registration or exemption under securities laws.
Vesting and Cliff Periods:
Include vesting schedules that specify when the tokens will become available to the purchaser post the Token Generation Event (TGE).
Outline any cliff periods during which tokens do not vest, specifying the duration and the conditions under which tokens begin to vest post-cliff.
Rights and Obligations of Parties:
Clarify the rights and obligations of both the issuer and the purchaser, particularly relating to the issuance, handling, and potential return of tokens.
Ensure that the agreement specifies the issuer's and purchaser's limitations, especially regarding the transfer and sale of tokens.
Limitation of Liability and Indemnities:
Include clauses that limit the company's liability for issues not within its control, such as blockchain malfunctions or cybersecurity breaches.
Delineate indemnification provisions, protecting the company against breaches of the agreement by the purchaser.
Confidentiality and Data Protection:
Incorporate confidentiality clauses to protect the sensitive information of all parties involved.
Comply with data protection laws, specifying how personal data will be handled, stored, and protected under the agreement.
Termination and Survival:
Define specific conditions under which either party can terminate the agreement.
Ensure that key provisions such as confidentiality, liability, and indemnity survive the termination of the agreement.
Representations and Warranties:
The company should make representations about its legal authority to enter into the SAFT, the non-infringement of third-party rights, and compliance with relevant laws.
The purchaser must represent their eligibility as an accredited or qualified investor and confirm their token purchase's legal and regulatory permissibility.
Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) Compliance
Outline the procedures for verifying purchasers' identities through KYC (Know Your Customer) and KYB (Know Your Business) checks to comply with AML and CFT regulations.
Specify requirements for proof of identity, address, source of funds, and checks against sanctions and politically exposed persons (PEPs).
Jurisdiction and Dispute Resolution:
State the governing law and jurisdiction for the agreement, providing guidelines on how disputes will be resolved.
Include arbitration or mediation provisions before or instead pursuing litigation, specifying the rules and location.
Digital Signature and Electronic Delivery
Confirm that digital signatures are recognized as valid and binding, equivalent to traditional handwritten signatures.
Detail the process for electronic delivery of notices and other communications, ensuring they are considered received when delivered electronically.
Risk Disclosures for SAFT
The SAFT should highlight critical risks such as irreversible token loss from private key misplacement, financial jeopardy from cyber threats, and token malfunctions due to blockchain failures. Market risks include limited liquidity due to lack of secondary market support and significant price volatility from market and regulatory changes. Regulatory uncertainties could lead to adverse legal and tax implications, requiring investor diligence. Investment risks are heightened by the lack of insurance, potential issuer dissolution, and possible underperformance due to inadequate protocol development. Legal provisions should mandate investor acknowledgment of these risks, include disclaimers about the speculative nature of tokens, and require affirmations of understanding related to regulatory and tax responsibilities.
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The information provided is not legal, tax, investment, or accounting advice and should not be used as such. It is for discussion purposes only. Seek guidance from your own legal counsel and advisors on any matters. The views presented are those of the author and not any other individual or organization. Some parts of the text may be automatically generated. The author of this material makes no guarantees or warranties about the accuracy or completeness of the information.
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