SAFT Securities Risk: Why Kik and Telegram Matter

The SAFT was engineered as the securities-compliant way to raise capital on a future token: sell the agreement privately now, deliver the token at launch, and argue the token is functional rather than an investment by the time it lands. The Kik and Telegram matters are why founders cannot treat that engineering as a shield — courts looked through the two-stage form to the economic reality of the raise, and the structure did not exempt the token offering. This guide explains that securities-classification risk carefully. It is not legal advice, and it reaches no conclusion about any specific instrument.

The core of it

This is the securities risk in a SAFT during fundraising, why the Kik and Telegram outcomes matter for how that risk is read, and why the determination is a securities-counsel question rather than something a document label settles. For how the SAFT sits against a SAFE and a token warrant, see the instrument comparison.

• A SAFT (Simple Agreement for Future Tokens) was designed to fit US securities law: a private sale now, tokens delivered at network launch.
• In Kik and Telegram, courts effectively treated the private SAFT sale and the later public distribution as a single transaction, judged on economic reality rather than the two-stage form.
• The structure did not exempt the token offering — substance over form controlled.
• SAFTs are generally treated as securities during fundraising, and the SEC has taken an aggressive stance.
• This is not a universal "every SAFT is a security" rule — classification is fact-specific, jurisdiction-specific, and economic-reality-tested.
• The determination belongs to securities counsel on the specific facts. This article concludes nothing about any instrument and is not legal advice.

What the SAFT was designed to do

The SAFT (Simple Agreement for Future Tokens) promises future tokens at network or protocol launch. The design intent is to sell the agreement privately during fundraising and deliver the tokens later, once the network is live and the token might be argued to be functional rather than an investment. The structure is deliberately two-stage — and that is precisely the structure the case law tested.

What Kik and Telegram established

In the Kik and Telegram matters, courts effectively treated the private SAFT sale and the subsequent public token distribution as a single transaction, and judged it on its economic reality rather than its two-stage form. The result: the structure did not exempt the token offering from securities laws.

The correct reading is narrow and important:

• It is not a blanket rule that "every SAFT, always, is a security."
• It is that the two-stage form alone does not insulate the offering — substance over form controls, and the later token delivery did not cure an economically investment-driven raise.

This is the same logic the SEC applied in its 2017 DAO Report, which concluded that DAO tokens were securities under the Howey investment-contract test and cautioned that the federal securities laws reach an offering judged on its economic substance — whether the issuer is a traditional company or a decentralised organisation, whatever currency is used, and however the instrument is distributed.

Why this is the highest-risk instrument

Compared with a SAFE (future equity) or a token warrant (an exercisable right), the SAFT carries the heaviest securities-classification risk: SAFTs are generally treated as securities during the fundraising stage, and the SEC has taken an aggressive stance. The instrument's defining feature — the timing split between agreement and token — is exactly what the case law collapsed. See the instrument comparison.

The hedge that matters

Whether any specific instrument is a security is fact-specific, jurisdiction-specific, and decided on economic reality under the applicable test — not by what the document is called. This article reaches no conclusion about any particular instrument and is not legal advice. The only defensible position is early, specific securities-counsel involvement on the actual facts.

Practical guidance

1. Do not treat the two-stage form as a shield — Kik/Telegram collapsed exactly that.
2. Assume securities analysis applies during fundraising; the SEC stance is aggressive.
3. Engage securities counsel before any token fundraising — not after.
4. Consider a token warrant alongside a SAFE where counsel advises (esp. US-registered) — see token warrant vs side letter.
5. Document the economic reality honestly — substance, not labels, is what is tested.
6. Reach no self-conclusion on security status — it is counsel's, on the facts. Not legal advice.

Where cap-table tools stop

Pulley and Carta record and model fundraising instruments on the cap table and keep the data and audit trail around a raise. What they do not do — and cannot substitute for — is the securities classification itself. A tool can document the instrument's terms and timeline as evidence; the legal characterisation of whether that instrument is a security stays with securities counsel, on the specific facts.

Where Wag3s fits

Wag3s HR records the instrument terms, dates and token-delivery schedule as a structured, auditable record supporting a raise — the evidence layer, not a legal opinion. It supports, rather than replaces, the securities counsel whose determination the security question remains, on the specific facts and jurisdiction. See the HR product page.

Further reading

• SAFE vs SAFT vs Token Warrant
• Token Warrant vs Token Side Letter
• Post-Money SAFE Explained
• Web3 Fundraising Instrument Stack
• Token Cap-Table Management
• BSPCE vs Token Grants for French Web3 Startups

Sources

• SEC — Report of Investigation Pursuant to Section 21(a): The DAO (Release No. 34-81207, 25 July 2017): the Commission applied the Howey investment-contract test to conclude that DAO tokens were securities, judged on economic substance rather than label or distribution method.
• SEC — Press release 2017-131, "SEC Issues Investigative Report Concluding DAO Tokens, a Digital Asset, Were Securities": the official summary of that conclusion and its reach.
• The treatment of SAFTs as securities during fundraising, and the Kik and Telegram litigation outcomes, are fact- and jurisdiction-specific. Securities classification is determined on economic reality under the applicable test, not by a document's label — this article concludes nothing about any specific instrument and is not legal advice. Confirm with qualified securities counsel.