Although there were variations, an issuer raised funds in a typical SAFT offering to fund the development of a token-powered platform by selling investors a SAFT that represented the right to obtain a token allocation as soon as the platform was launched. The purchase price was paid after receipt of the SAFT and the number of tokens to be delivered in liquidation was set on the day of the token generation event, usually with a discount on the public purchase price. For many issuers, numerous delays in launching the platform have led SAFT holders to look for exits before launch, and as the expected launch dates approach, other investors are looking for ways to buy tokens at a discounted price. There is therefore a natural supply and a natural demand for secondary transfers of SAFTs. However, these secondary sales are made difficult by a number of contractual and regulatory factors which are discussed below. Tokens as commodities. Assuming that the underlying tokens acquired by secondary futures contracts are “commodities” within the meaning of the Commodities Exchange Act (CEA), the Commodity Futures Trading Commission (CFTC) may have regulatory authority over secondary futures contracts, depending on whether the contract enters into the CFTC`s existing trading contracts. Like many companies that deal with ICOs, Kik issued a “white paper” in front of the ICO that hit Kik. The SEC repeatedly cited the white paper throughout the complaint. The SEC also referred to press releases, speeches by Kik`s Chief Executive Officer, presentations to potential investors, YouTube posts, various social media posts and television appearances. The SEC addressed the fact that Kik had promised investors that Kick`s efforts would generate profits for investors. The SEC referred to the fact that Kik had “promised” investors that Kik would boost demand for Kin tokens by redesigning 1) the “Kik Messenger” (kik messaging app) to integrate Kin tokens; 2) creating a “reward engine” to compensate companies that have encouraged Kin-Token transactions; and 3) implementing new “transaction services” that would solve errors in existing blockchain technology.

According to the SEC, these promises and statements indicated that Kin tokens fulfilled the third tooth of the Howey test because they indicated an “expectation of gains derived from the efforts of others.” In contrast, many SAFTs require advances that represent a significant portion of the final purchase price of a fixed number of tokens submitted to the SAFT. Even if this factor is weighed against open transaction processing for a SAFT (because a large non-refundable deposit indicates that a taxable sale has taken place and the authority can be distinguished), if the token does not yet exist because it is under construction, it is possible that the SAFT is still considered a futures contract, even in the case of a substantial down payment, subject to open processing of transactions for federal income tax purposes. . . .