Latham & Watkins has collaborated with ConsenSys to launch the Automated Convertible Note to help startups raise capital using a traditional financing instrument with an eye toward a future distribution of tokens.

In recent years, token presale agreements, including the Simple Agreement for Future Tokens (the SAFT), have become a popular type of financing instrument among startups in the blockchain and cryptocurrency sector. These agreements typically provide startups with non-dilutive financing to fund the development of their blockchain-based network or platform and are often used as an alternative to traditional startup financing instruments (such as convertible promissory notes and preferred stock). While these agreements seek to solve certain securities law issues applicable to sales of prefunctional tokens, they raise significant additional concerns with regard to US securities and commodities laws. In light of such concerns, Latham & Watkins has collaborated with ConsenSys to launch the Automated Convertible Note to help startups raise capital using a traditional financing instrument with an eye toward a future distribution of tokens. This analysis surveys the regulatory issues raised by existing token presale agreements and introduces the ConsenSys Automated Convertible Note as a potential solution for capital formation that also addresses future token sales in a manner compliant with US securities and commodities regulations.