The simplest one is that there are multiple sub classes of preferred stock ("shadow series") - eg for a Series A, there are Series A-1, Series A-2 shares that represent each cap. These classes each have their own liquidation preferences matched to the dollars put in originally. The YC-standard safe also contemplates this by referring to "safe preferred shares".
Another option is that the "extra" shares that the converting safeholders receive as a result of the difference between the conversion price and round price are given as common shares (which have no liquidation preference).
Of course the other concern is that you actually have to be cognisant of this issue - or have a lawyer who is - to catch it. Maybe the SAFE could just mandate the pref+common conversion?
Really, no one has said it, but one of the few remaining competitive advantages of Silicon Valley is the legal talent available here. While I read Venture Hacks and Brad Feld as much as anyone, I'll get a good lawyer when/before I get to A.
Similarly, LLC's can be a simple stepping stone to Delaware C. Also, provisional patents are a stepping stone to a full application. Along with Safes, these allow people to move forward without the complexity and cost of completeness.
few->many
So, in your example, for each dollar invested, seed investors would have 1 preferred share with 1x liquidation preference and a price of $1, and 3 shares of common stock.
In general, the problem is that most benefits that investors enjoy are properties of their shares rather than the money that they invested. For an equity round this is one and the same. Not so much for convertible notes. A simple example:
An entrepreneur raised a $1M convertible note with a $5M cap. Ignore discount, interest and other factors for now. She then raises a $5M round at a valuation of $20M. That yields a dilution of 20% for the round plus a "hidden" dilution of ~17% for the note conversion (1/6). That's the blurry issue that both authors discuss. But if anything the share rights are even blurrier. Let's say that the equity round came with what is commonly referred to as a 1x liquidation preference (non-participating). So they would get $5M back before other shareholders get anything. Even though I just worded that as matching the money that they put in, it is generally a property of the share class that the investors hold. For example, their $5M might have bought 5M shares at $1/share that each says "redeemable for $1 or convertible to common shares". Our note investors also hold those shares now. But instead holding one per dollar, they now hold four per dollar (since they pay 1/4 the price for such a share). Suddenly, they have effectively a 4x liquidation preference benefit and the company has to return a full $9M before common shareholders/founders see a penny of payout (despite only having $6M in the bank).
Interest rates, pre-round ESOP increases, and many other factors in convertible notes make this problem worse. And it affects just about all aspects of the cap table including voting rights, protective provisions, redemption rights, etc.. Basically, the bigger the gap between the cap and the eventual round, the bigger the privilege the note investors pick up. Not just in economic benefit where you would expect it, but also in power/insurance/protections/etc. where it isn't obvious at all. Nowhere in your term sheet for the note or equity round will it mention 4x liquidation preference. Doing so would cause instant rejection of the deal by even the most inexperienced founder! But that's exactly would is going to happen once all the conversion mechanics are executed. And that can catch even seasoned entrepreneurs off guard (and seasoned investors, including plenty of note holders who never understood that they would get these benefits).
Convertible notes - SAFE or otherwise - have a role to play in venture financing. But they are complex instruments and should be use carefully. Anything else is just a recipe for pain in the long run.