The Hidden Problems of Illiquid Web3 Assets: Unlocking Frozen Capital in SAFT

In the rapidly evolving world of blockchain technology, investments in Web3 projects have become an integral part of the portfolios of many funds and retail investors. One of the most popular and accessible instruments for raising capital is the SAFT (Simple Agreement for Future Tokens) — a straightforward contract for future tokens. While SAFT plays a crucial role in financing startups, it also carries hidden problems related to asset illiquidity, which is exactly what we’ll discuss today.

Investing Through SAFT

Investing via SAFT means that investors receive the project’s tokens only after certain conditions are met, such as the product launch, roadmap milestones, or token listing. This implies that the invested funds remain frozen for an indefinite period. According to analysts, over $10 billion in assets are currently frozen in illiquid assets and SAFT contracts within the Web3 ecosystem. This situation doesn’t make the market any “healthier,” as this capital could be released and redistributed in the market but instead remains inaccessible to investors and project founders.

Consequences of Illiquidity

The illiquidity of SAFT and similar instruments leads to several serious consequences:

• Limited Liquidity: Investors cannot quickly withdraw their funds or sell assets until certain events occur. This limits their financial flexibility and ability to respond to rapid market changes.
• Delayed Return on Investment: The waiting period can stretch for months or even years. During this time, the capital generates no income and cannot be reinvested in other promising projects.
• Financial Risks: The inability to exit the investment increases risks associated with project failure or changing market conditions.
• Constraints for Founders: Project founders also suffer, as frozen capital doesn’t contribute to the growth and development of the business. Limited financial resources can slow down scaling and innovation implementation.

Solutions

There are several approaches to solving the problem of capital being frozen in illiquid assets:

Tokenization of SAFT

Tokenization allows for the conversion of illiquid SAFT into liquid tokens that technically represent rights to own the SAFT. As a result, investors can trade these tokens on decentralized exchanges. This not only increases liquidity but also provides investors with more options to manage their investments.

• Example: Implementing smart contracts that allow SAFT to be broken down into smaller parts and traded on the open market.

Development of DeFi Instruments

Decentralized Finance (DeFi) offers new ways to manage previously illiquid assets:

• Lending Against Tokenized SAFT Collateral: Investors can use their liquid tokens representing rights to SAFT as collateral to obtain loans, providing access to liquidity without needing to sell their assets.
• Liquidity Pools: Creating pools where previously illiquid assets can be used to generate income through fees and rewards.

Secondary Market Platforms

Specialized platforms enable investors to sell or exchange their SAFT before they unlock:

• Trading Illiquid Assets: The ability to find buyers willing to purchase illiquid assets at a discount.
• Marketplaces for SAFT: Platforms specializing in trading contracts for future tokens.

Conclusion

The problem of illiquid assets like SAFT remains relevant for many investors and project founders in the Web3 space. Limited liquidity and delayed return on investment can significantly impact financial results and development strategies. However, innovative solutions such as tokenization and DeFi instruments offer real opportunities to overcome these obstacles and unlock the full potential of frozen capital.

If you’re facing similar challenges or want to learn more about solutions for tokenization, trading, or obtaining loans against illiquid assets, Marsbase is ready to offer its expertise and resources to unlock your capital.

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