The age of the SAFT

So far, 2017 has been the year of the ICO—the Initial Coin Offering—where anyone with the smarts to programme their own blockchain currency can raise funds from institutions and the public while offering absolutely no guarantees or legal promise of future rewards. It’s a Wild West casino, with many ICOs already proven to be money-raising scams, and so far this year $2.3 billion has been poured into the flourishing cryptocurrency ecoverse in the hope that another Bitcoin or Ethereum might be in the offing. It was only a matter of time before legal and fiscal scrutiny would be brought to bear on the matter—partly because governments would want their cut and partly because legislators would feel the need to protect the public: yield-starved investors are flocking to cryptocurrencies partly because even junk bonds currently pay only a 3% to 4% coupon. The sheriff, in the shape of the New York State Department of Financial Services (NYDFS), recently rode into town with something called a “BitLicense” on his hip, suddenly making that state a financially more hostile environment for freewheeling ICO adventurers. Issuers need to register at a rumoured minimum non-refundable cost of $5,000 and—according to some reports—an estimated total cost of compliance of $50,000 to $100,000. This is already provoking some swerving from infant blockchain-based companies. What is going to happen next will be the year of the SAFT in 2018. SAFT stands for Simple Agreement for Future Tokens, and the difference between it and the potentially worthless tokens apportioned in a standard ICO is that, firstly, lawyers have scrutinised and to some extent fireproofed, liability for both the issuer and the customer—partly by honestly explaining the risks. Secondly, it implies that the company has got to the stage of development where their blockchain network has some real-world value. SAFTs are by no means perfect, but they are the beginning of trust and respectability in the cryptocurrency badlands. Watch out for more of them soon.