The Future of Fundraising: SAFTs and the Coming Crackdown

The Simple Agreement for Future Tokens was the industry's go-to legal hack, designed to separate the investment contract (the SAFT) from the eventual utility token. The SEC's actions against Telegram ($1.7B ICO) and Kik proved this distinction is legally meaningless to them. Their core argument: the entire scheme, from fundraising to network launch, is one integrated securities offering.

• Key Precedent: The Howey test applies to the economic reality of the entire enterprise, not just the final token.
• Key Risk: Promises of future profits derived from managerial efforts, even by a decentralized foundation, are a red flag.
• Key Outcome: Post-launch token distributions to initial investors are still considered part of the original illegal sale.

The 2017 DAO Report wasn't an enforcement action, but it established the SEC's foundational thesis: certain tokens are investment contracts. It rejected the 'decentralization defense' at the time of sale, focusing on the reliance on the managerial efforts of a promoter. This precedent directly enabled every subsequent case.

• Key Precedent: Established that tokens sold to fund a project, with promises of returns, are securities.
• Key Risk: 'Utility' narratives are irrelevant if the primary motivation for purchase is profit.
• Key Outcome: Forced the pivot from blatant ICOs to more structured, lawyer-vetted instruments like SAFTs.

The SEC vs. Ripple Labs created a critical, pro-crypto carve-out. The court ruled that blind bid/ask sales on exchanges were not securities transactions, while direct institutional sales were. This introduced a massive loophole and highlighted the SEC's overreach, but its application is narrow.

• Key Precedent: Exchange sales to retail may escape securities laws if devoid of promises from the issuer.
• Key Risk: Direct sales, SAFTs, and other pre-arranged deals remain firmly in the SEC's crosshairs.
• Key Outcome: Accelerated the shift towards fair launch models and airdrops as a fundraising-adjacent tactic.

The logical next step for the SEC is attacking the current VC standard: the SAFE + Token Warrant. This structure attempts to separate the equity investment (SAFE) from the optional right to future tokens (warrant). The SEC will argue these are functionally identical to a SAFT—a single investment scheme for a token-dependent project.

• Key Target: Top-tier VC-backed L1s and L2s that used this structure in their last rounds.
• Key Defense: True operational revenue pre-token, and a clear dissociation between company success and token utility.
• Key Future: Forces a return to traditional equity rounds with no token linkage, or fully functional networks before any token sale.

The Simple Agreement for Future Tokens is a pre-product security that transforms into a utility token upon network launch. This creates a binary regulatory risk for builders.\n- SEC's Howey Test: Tokens are judged at issuance, not launch. A SAFT is an unregistered security sale.\n- Investor Lawsuits: If the network fails or token underperforms, SAFT buyers have clear grounds for securities fraud claims.\n- Representative Penalty: The $22M Block.one (EOS) settlement set the precedent for slapping wrists, but the SEC's posture under Gensler is far more aggressive.

Projects like Uniswap and dYdX retroactively airdropped tokens to users, attempting to bootstrap decentralization and utility. This is now a played-out regulatory arbitrage.\n- Retroactive Utility: The SEC views this as a reward for past investment of time/data, not a true utility transaction.\n- Centralized Control: The founding team controls the airdrop criteria, treasury, and initial governance, negating the "sufficient decentralization" defense.\n- Coming Targets: The Coinbase vs. SEC case will define the boundaries; expect the SEC to argue most airdrops are unregistered distributions.

The only durable path is to launch a functional, decentralized network from day one, with the token as a required utility. This mirrors the Bitcoin and Ethereum model.\n- Liquidity Bootstrapping Pools (LBPs): Platforms like Fjord Foundry and Balancer allow price discovery via a descending Dutch auction, distributing tokens broadly without a pre-sale.\n- Protocol-Controlled Value: Use initial treasury to seed liquidity in AMMs like Uniswap V3, making the token a direct gateway to protocol revenue.\n- Immediate Utility: The token must be required for governance, fees, or staking at T=0. No promises, only function.

VCs push for SAFTs for their liquidation preference and token warrants, but their interests diverge catastrophically during regulatory action.\n- Downside Protection: VCs often have indemnification clauses, leaving the founding entity holding the bag for legal penalties.\n- Forced Centralization: To meet SAFT delivery milestones, teams must retain centralized control, directly contradicting the decentralization narrative needed for legal defense.\n- The DAO Fallacy: Attempting to shift liability to a DAO post-SAFT is legally untested and likely seen as a fraudulent conveyance.

The Simple Agreement for Future Tokens was a legal hack that deferred securities classification to a future network. Regulators (SEC, CFTC) now view this as a delayed disclosure violation. Your 2017-2021 SAFT is likely an unregistered security offering in hindsight.\n- Key Risk: Retroactive penalties, rescission offers, and project insolvency.\n- Action: Conduct a Howey Test audit on your token's original launch economics.

Future fundraising must align with one of two compliant paths, eliminating the 'future work' promise that defines a SAFT.\n- Path 1: Functional Network First: Raise after TGE with a decentralized, usable protocol (e.g., live Uniswap pools). Token is a utility.\n- Path 2: Registered Security Wrapper: Use an SEC-qualified offering (Reg D, Reg A+, Reg S) for the token itself, accepting its status as a security from day one.

The next wave of legal-tech infrastructure will bake compliance into the chain. This isn't about KYC'ing every wallet, but about programmable regulatory primitives.\n- Primitive 1: Transfer restrictions via ERC-1400/3643 for security tokens.\n- Primitive 2: Automated distribution schedules & vesting enforced by smart contracts, replacing manual cap table errors.\n- Entity: Platforms like Securitize, TokenSoft, and Polymath are building this stack.

VCs who piled into SAFT rounds are now facing contingent liability from their portfolio. Their LPs are asking questions. This creates a massive incentive shift.\n- Result: Future funding will require a legal opinion letter on token structure before the term sheet is signed.\n- Result: Liquidity provisions for early investors will move to regulated secondary platforms (e.g., tZERO, INX) or not exist at all.