Far from insulating token issuers against regulatory actions, the proposed SAFT framework may actually increase the risk certain sales run afoul of securities laws, according to a new report out today.
If put into practice, the Simple Agreement for Future Tokens (SAFT) structure could misalign incentives, encouraging sophisticated early investors to flip tokens for a profit and driving up their cost to end-users, warns the report from the Cardozo Blockchain Project at Cardozo Law School in New York.
The 13-page report lays out a detailed, though civil, critique of the SAFT white paper issued last month by the Cooley law firm and Protocol Labs. That paper was billed from the get-go as a conversation-starter, and Marco Santori, the Cooley lawyer who spearheaded the project, invited feedback from the legal community.
But the feedback in the Cardozo paper suggests that making initial coin offerings (ICOs) compliant with securities laws, while still delivering on the technology’s disruptive promise, may be a harder needle to thread than the SAFT solution anticipates.
The paper cautions:
“[T]he SAFT approach could heighten the exuberance manifesting in markets for blockchain-based tokens and make it even more difficult to provide consumers access to potentially impactful new technology.”