Introduction
Raising capital for a crypto startup involves navigating a complex intersection of technology, finance, and regulation. Traditional venture funding models often fail to capture the unique nature of blockchain projects, especially those that plan to issue tokens or operate in decentralized ecosystems. As a result, new fundraising instruments such as the SAFT (Simple Agreement for Future Tokens) and SAFE (Simple Agreement for Future Equity) have emerged as preferred mechanisms for crypto founders. Understanding how these agreements work—and their tax, regulatory, and investor implications—is essential for structuring compliant and sustainable funding rounds.
The Evolution of Crypto Fundraising
In the early years of blockchain innovation, startups commonly raised capital through Initial Coin Offerings (ICOs), where tokens were sold directly to investors before a functioning product existed. While ICOs provided fast liquidity and democratized access to capital, they also led to significant regulatory scrutiny due to securities violations and investor losses. The industry has since matured, adopting more legally structured instruments like SAFTs and SAFEs to align with existing securities laws and investor protection standards. These instruments bridge the gap between traditional venture capital and token-based financing by providing a contractual promise of future value rather than immediate token delivery.
What Is a SAFE Agreement?
A SAFE (Simple Agreement for Future Equity) was originally developed by Y Combinator as a streamlined alternative to convertible notes. It allows investors to provide capital today in exchange for the right to receive equity at a future date, typically during a priced funding round. SAFEs do not accrue interest or have maturity dates, making them flexible and founder-friendly. In the context of crypto startups, SAFEs are often used when the project has a corporate structure and intends to issue equity in a holding company that manages the token ecosystem.
For example, a crypto infrastructure company developing blockchain analytics software may issue SAFEs to early investors who will later receive equity once the company completes a priced round. This structure avoids the regulatory risks associated with early token sales and provides investors with ownership in the underlying legal entity rather than direct exposure to token volatility.
What Is a SAFT Agreement?
The SAFT (Simple Agreement for Future Tokens) is an adaptation of the SAFE model specifically designed for blockchain projects. Instead of promising future equity, a SAFT grants investors the right to receive tokens once the project’s network is live and the tokens are usable. The idea behind SAFTs emerged in 2017 as a response to regulatory concerns that token sales prior to network functionality could be considered securities offerings. Under this model, the SAFT itself is treated as a security, but the eventual tokens—once delivered and functional—may not be.
A typical SAFT process involves accredited investors purchasing the agreement during the project’s early development phase. The funds are used to build the network, and once the token is launched, the investors receive their allocation. This approach provides regulatory clarity and ensures that the tokens are distributed only when they have genuine utility within the network. However, the legal treatment of SAFTs continues to evolve, and many jurisdictions still classify the resulting tokens as securities depending on their characteristics and market behavior.
Comparing SAFTs and SAFEs in Crypto Fundraising
The choice between a SAFT and a SAFE depends largely on the startup’s structure and long-term objectives. SAFEs are ideal for corporate-style crypto startups—such as exchanges, data analytics firms, or blockchain service providers—where the primary value lies in equity ownership. SAFTs, on the other hand, suit token-based projects that plan to issue a native cryptocurrency or utility token integral to their ecosystem.
Founders should consider how investor expectations align with the project’s future deliverables. Equity investors expect profit participation through company growth, dividends, or acquisition exits, while token investors anticipate liquidity through token listings or network adoption. A hybrid structure is also increasingly common, where a company issues both equity (via SAFEs) and tokens (via SAFTs) to balance governance, liquidity, and compliance objectives.
Legal and Regulatory Considerations
Both SAFEs and SAFTs must be structured carefully to comply with securities and tax regulations. In the United States, SAFTs are generally offered to accredited investors under Regulation D exemptions, while SAFEs follow conventional venture capital frameworks. Founders must ensure that investor documentation, token economics, and fundraising disclosures align with the expectations of the Securities and Exchange Commission (SEC) and other relevant regulators.
Global projects must also account for cross-border compliance. Selling SAFTs to investors in multiple jurisdictions may trigger securities obligations in each location, requiring legal opinions, disclosure documents, and in some cases, registration or licensing. The growing implementation of international frameworks such as the OECD’s Crypto-Asset Reporting Framework (CARF) will further expand transparency and reporting duties.
Tax treatment is another critical factor. Proceeds from SAFT or SAFE agreements are often considered deferred income or liability until the equity or tokens are issued. Startups should work with tax advisors to ensure that these instruments are recorded appropriately and that any subsequent token distributions comply with both corporate and investor-level reporting requirements.
Risks and Challenges
Despite their advantages, both SAFTs and SAFEs carry inherent risks. For SAFTs, token issuance delays, changes in regulatory stance, or token devaluation can significantly affect investor confidence. If a project fails to deliver tokens or the network never launches, investors may claim refunds or pursue legal remedies. SAFEs, while simpler, can lead to complex cap table scenarios if multiple rounds are issued without proper conversion triggers. Founders must maintain transparent communication and clear legal documentation to prevent future disputes.
Moreover, as markets evolve, the line between security and utility tokens remains blurred. Regulators are increasingly applying a substance-over-form approach, examining the token’s economic reality rather than its contractual description. This underscores the need for professional legal guidance when structuring any token-related fundraising instrument.
The Future of Crypto Fundraising
As the crypto industry matures, investors and regulators alike are seeking balance between innovation and investor protection. Hybrid models that combine SAFTs, SAFEs, and equity-linked tokens are emerging as the next stage in compliant Web3 fundraising. These frameworks allow startups to align investor incentives while maintaining legal clarity and operational flexibility.
In the coming years, tokenized equity, fractional ownership models, and on-chain fundraising platforms may replace traditional agreements altogether, enabling programmable compliance and automated investor relations. However, for now, SAFTs and SAFEs remain the most practical bridges between the decentralized vision of blockchain and the structured world of capital markets.
Conclusion
For crypto founders, raising capital is no longer just about securing funds—it’s about building trust, ensuring compliance, and aligning token economics with long-term business goals. Understanding the distinctions between SAFTs and SAFEs allows startups to choose the right instrument for their stage, structure, and jurisdiction. A well-designed funding strategy not only attracts investors but also sets the foundation for sustainable growth and regulatory resilience.
Block3 Finance helps crypto startups and founders design compliant fundraising structures, manage token economics, and implement transparent financial systems that align with both investor expectations and evolving global regulatory frameworks
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