SAFE plus token, warrants and SAFTs: how crypto venture deals are papered

Early-stage technology investing has a standard instrument: the simple agreement for future equity, which converts into shares at a later priced round. Digital asset companies broke the standard, because much of the value they create can end up in a token rather than in the company’s equity. The industry has spent several years working out how to give an investor a claim on both without creating a securities-law problem for either.

Three instruments

A simple agreement for future tokens is a contract to deliver tokens when a network launches, usually from a token-issuing entity in a jurisdiction chosen for the purpose. It gives the investor no equity. A token warrant is attached to an equity instrument and gives the holder the right to a share of any tokens later issued, with price and exercise mechanics fixed in advance. A token side letter does the same job with more discretion left to the issuer. Norton Rose Fulbright’s venture capital series describes the warrant as the instrument that most cleanly separates the equity claim from the token claim.

The structure the market chose

Outlier Ventures and other early-stage investors describe the current standard as a SAFE plus token structure: a conventional equity instrument, paired with a token warrant or side letter. The pairing compartmentalizes the two claims. The equity instrument is well understood by founders, investors and counsel; the token instrument carries the securities-law analysis, which can be handled without contaminating the equity. Standalone SAFTs have become less common at seed stage as this structure matured, though they remain in use for later rounds where a token already exists or is imminent.

• Equity instrument: claim on the company, standard terms, established treatment
• Token warrant: fixed share of future tokens, defined price and exercise, attached to the equity
• Token side letter: same intent as a warrant with more issuer discretion, common at pre-seed
• SAFT: standalone promise of tokens, no equity, used where a token is near
• Token purchase agreement: purchase of existing locked tokens under a vesting schedule

What the investor should read

Whether the token right is proportional to equity or fixed; whether it survives a change of control or a pivot; what happens if no token is ever issued; which entity delivers the tokens and in which jurisdiction; and the vesting schedule, which typically runs three to four years with a one-year cliff and unlocks alongside team allocations. The Legalnodes playbook for founders is candid that side letters offer founders flexibility on pricing and timing; the corollary for investors is that a side letter offers less certainty than a warrant.

Why it matters for how a position is held

The instrument determines the position’s liquidity profile. Equity in a private company is illiquid until an exit. A token right becomes a locked token at launch, then a liquid one at unlock. A manager holding these positions needs a valuation policy that treats each stage differently, a side-pocket structure that keeps liquid investors away from the estimates, and a plan for what to do at unlock that was written before the tokens arrived.