Explaining The “Simple Agreement For Future Tokens” Framework

Reasoning behind the SAFT framework

“ICOs, these things can transform. They may start their life as a security from a capital-raising perspective but then at some point (…) turn into a commodity.” CFTC Commissioner Brian Quintenz

This statement was probably the most specific comment by the Commodity Futures Trading Commission regarding the classification of ICO’s and shows quite well the bipolar nature of many tokens. The reasoning behind the Simple Agreement for Future Tokens (SAFT) framework is the fact that there is no bright line determining which types of tokens are securities and which are not. Therefore, tokens sold as utility tokens to the public might end up being considered securities at the time of issuance by the U.S. Securities and Exchange Commission (SEC), which is often followed by many unwanted legal consequences.

Issuing unregistered securities is a violation of Section 5 of the Securities Act of 1933, and, beyond significant monetary penalties, issuers could face a maximum of five years of federal prison. Secondary trading markets that facilitate transactions in the tokens could themselves be liable for penalties for failing to register as a broker-dealer, exchange or alternative trading system (ATS). An organization that claims that its tokens are non-security utility tokens, and does not register or use a registration exemption, also must evaluate the “Blue Sky” securities laws of all states in which token buyers…