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Crypto Digest #6 – SAFEs and SAFTs

Crypto Digest #6 SAFTS

This is the sixth of our Crypto Digest blogs brought to you by Mezzle Law’s resident crypto lawyers. Subscribe to stay up to date with our short and informative blogs on all things law and crypto (lex cryptographia).

What is a SAFT?

If you are a start-up, invest in start-ups, or work with start-ups in any other capacity (like we do for example), you will have heard of a SAFE, a Simple Agreement for Future Equity. The mechanisms of this, are exactly as they sound: money (investment) is received now (upon signing the SAFE) but shares in the start-up are only received later (upon the SAFE triggering as set out by the trigger points therein – usually the next round of equity financing).

The SAFE came about as a betterment of the traditional convertible note. Where a convertible note has two mechanisms included in it, a loan mechanism and a conversion mechanism, the SAFE did away with the loan part of this (including the interest rate and maturity date – two common parts of your standard loan agreement) and became an agreement which simply focused on the conversion of an investment amount into shares at trigger points in the future.

There are benefits provided to the investor in the SAFE for early investment without shares, but the above information was just paving our way to discuss the star of this article: the SAFT. A Simple Agreement for Future Tokens. This is an alternative method of financing a crypto business to an initial coin offering (ICO).

Start-ups which have tokenomics built into them, whereby they are launching a token as part of their start-up, use SAFTs for receiving investment. These investment rounds move a lot quicker than traditional start-ups and are usually completed within a number of weeks (if not a number of days). The investment amount is remitted in crypto and the investor receives a certain number of the tokens upon the token launch event.

These tokens are heavily discounted for the investor’s early investment and can be subject to a lock-in period, usually only transferred to the investor’s wallet pursuant to a certain vesting schedule (which is either standard for that start-up’s SAFTs, or agreed with the investor beforehand).

There are various risks to consider when investing in a start-up either through a SAFE or a SAFT, but that would have to be covered in a whole other article (soon to follow) where we will also differentiate a SAFT from an ICO, and discuss the pros and cons of each.

In the meantime, should you require any assistance either with your traditional start-up or your blockchain one, investing into a start-up (whether traditional or one with tokenomics built in), or anything else start-up, crypto, or blockchain-related, look no further. Mezzle is here.


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