SAFT is a structure that obeys the Federal Securities and Money-transmitter laws, provide greater flexibility in tax management. The Structure is works for the Utility Token instead of Securities Token. Once the project launches and the protocol turns into Mainnet , it gives the right to the Investors to perceive the tokens from Developer inc. which is an entity established for obeying the structure.

For the now-functional utility tokens, there is a strong argument that the token is not securities.

Howey test defines what is an investment contract. An investment contract is a contract / transaction / scheme whereby a person invests his money in a common enterprise and wish to get profits back from others efforts.

Courts often breakdown the Howey test into four prongs to determine 1) whether there exists an investment money 2) whether there exists a common enterprise 3) Whether there exists an expectation of profits 4) Whether the expectation of profits is solely from the efforts of others. If all prongs meet these four situation , the a contract , scheme , or arrangement passes the Howey test and constitutes a security. If any one of prongs listed is not met, then the arrangement fails the Howey test and there is no security.

Already functional utility tokens are unlikely to pass the Howey test. Because this arrangement fails the prong: “the expectation of profits ”and “from the efforts from others”.

Step 1: Developers publish their whitepaper, incorporate a Delaware corporation called Developers Inc., and secure commitments from accredited investors.

Step 2: Developers enter a SAFT agreement with the accredited investors relying on the exemption set forth in Rule 506(c)69 of Regulation D of the Securities Act, and the accredited investors transfer funds in the amount of $15 million to Developers Inc. The SAFT offers investors a discount on the final token sale and is a security, so the developers file a Form D with the SEC disclosing the sale.

Step 3: Developers Inc. uses the proceeds to develop the network into a product that provides genuine utility to its users.

Step 4: Developers Inc. launches the network and delivers the tokens to the investors. The investors (and potentially Developers Inc.) begin sales of the token to the public, either directly or through exchanges.

Delaware is a crypto-kindly state in US. A Developers corporate need to register in Delaware. And Developer inc. must announce their pre-view whitepaper and publish some of codes.

Developers inc. signs a SAFT agreement with accredited investors. Developers inc. also form a Form D with the SEC. The SAFT is also an investment contract that give the investors right to receive tokens when the Mainnet launch. SAFT is , at heart, a forward contract rather than an investment contract, which exchanges the Developers Inc.’s promise to deliver tokens on the launch of the network for the investors’ promise to immediately pay.

In this step, Developers.inc uses the funds from step2 to develop the network. The company pays for rent, utilities, software engineering, and additional items required to launch the planned network. Still, the ultimate goal of this step is to launch a utility token for the functional network. This means that any future agreement to purchase the tokens—and indeed the tokens themselves— should fail the Howey test and fall outside the definition of a security.

At the beginning of Step 4, Developers Inc. delivers the tokens to the investors and the investors’ rights in the SAFT are extinguished. The investors can achieve liquidity in their investment and Developers Inc. can, if the developers so desire, achieve operating revenue by selling some of the now-functional tokens directly to the public. The SAFT framework mitigates several risks that would typically endanger a public token sale at this stage.