SAFTs & Token Warrants — What They Are and How They Work

How to invest in the tokens of web3 startups and projects without crossing regulatory lines

Steve Glaveski
4 min readMay 25, 2022


The mechanics surrounding early-stage investment in company equity is a well-worn pursuit, honed over decades since HBS professor George Doriot raised a $3.5 million fund to invest in technology companies back in 1946.

George Doriot — the father of venture capital.

Equity term sheets are relatively standard, and today, when funds invest in an early-stage company, they typically use an instrument such as a convertible or a SAFE note (secure agreement for future equity) — the latter popularized by Y-Combinator.

But what happens when you’re investing not in equity but in a web3 startup’s native tokens - an instrument that doesn’t come with the same regulatory clarity?

There are two mechanisms on offer.


SAFTs (secure agreement for future tokens) is one such mechanism. A SAFT is a security issued for the eventual transfer of tokens from web3 startups to investors.

Web3 startups can use funds from the sale of SAFT to develop their project, mint their tokens, and issue their tokens to investors who have an expectation that there will be a secondary market to sell these tokens to.

But this promise for future tokens has run afoul of the Securities and Exchange Commission (SEC).

Messaging app Telegram was forced to return US$1.2 billion and pay the SEC an $18.5 million penalty because its native tokens, GRAMS, were found to violate federal securities laws.

Rival messaging app Kik was also ordered to pay a $5 million penalty because its native KIN tokens were also found to violate securities laws.

The Howey Test

Both Telegram and Kik were found to fail the Howey Test — which determines whether or not a…



Steve Glaveski

CEO of Collective Campus. HBR writer. Author of Time Rich, and Employee to Entrepreneur. Host of Future Squared podcast. Occasional surfer.