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Crypto Digest #7 – Risks of SAFTS

Crypto Digest #7 RISKS OF A SAFT

This is the seventh 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).

In our sixth issue of this Crypto Digest, we explained what SAFEs and SAFTS were. In this digest, we’ll go a little deeper into the risks of a SAFT and what to consider if you are investing into an early stage tokenomics project through a Simple Agreement for Future Tokens (SAFT).

Unlike the SAFE which is usually a standard document created by YC Combinator (and/or which closely resembles the YC Combinator SAFE), each SAFT is created specifically for the tokenomincs project to which it relates.

Despite each SAFT being different from the other, there are common themes which can usually be seen in each one. One of the main reoccurring themes of a SAFT is pages upon pages of disclaimers. These usually have their own section and/or are included as an attachment to the SAFT (because they are so long). This is entirely normal. Risk adverse lawyers reviewing a SAFT for the first time are likely to advise their client not to sign, but the more SAFTs one reviews and/or prepares, the more one comes to realise these are actually an integral part of each SAFT and an accepted part of the crypto culture between projects and investors.

It is still important to review these and/or prepare them properly however, because as mentioned, SAFTs don’t follow a standard format like SAFEs do and therefore, none of them are ever the same (whether its disclaimers and/or the rest of the contents of the agreement). While some risks and disclaimers will become routine to see, others will need to be further considered in terms of remoteness and manageability. This is why it is crucial to ensure you have retained a lawyer familiar with SAFTs to be able to advise you properly and help negotiate the terms.

Other things to consider when entering into a SAFT, is that the project might not go ahead. This is however a culturally accepted risk in the crypto community and one which investors are usually aware of and willing to accept. This is because early stage investors into tokenomics projects are usually providing funding for the development of the project and thereby, will only receive tokens for their early stage investment after what’s called the “token launch event” (which happens in the future and is not like a SAFE which usually relates to an already existing company or one which is in the process of being incorporated).

The parties agree on a number of tokens that the investor will receive for his/her investment amount. A part of these are usually vested in the investor upon the token launch event, the remainder vesting pursuant to a vesting schedule as set out in the SAFT. There may also be a lock-in period to prevent a “dump” and/or additional restrictions on sale/transfers which should always be considered when entering into a SAFT.

While it may not make sense to some people that investors are entering into SAFTs, this is the accepted means whereby investments are made into early stage tokenomics projects and just the way things are done in crypto. Investors go into such projects with their eyes wide open, knowing what the risks are.

Should you require any assistance with a SAFT and/or any other legal assistance with regards to a tokenomics project, please do reach out to Mezzle.

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