What Is Soft Cap and Hard Cap?
Also known as: Soft Cap, Hard Cap, Softcap, Hardcap
In short
Soft cap and hard cap are two funding limits set in ICOs and similar token sales: the soft cap is the minimum amount that must be raised for the project to go ahead, and the hard cap is the maximum amount the sale will accept.
If the soft cap is not reached in a token sale, the project generally considers the sale failed and commits to refunding the collected funds to participants; in some sales, this refund is made automatically through a smart contract. When the hard cap is reached, the sale ends and no further participation is accepted. For example, in a sale with a soft cap of $2 million and a hard cap of $10 million, if only $1.5 million is raised, the funds are refunded; the moment $10 million is reached, the sale closes.
These limits give investors an idea of the project's financing plan. While the soft cap shows the team's minimum budget need, a very high hard cap can lead to raising funds far above the need and to inefficient use of capital; sales that raised very large amounts in a short time during the 2017 ICO era brought this debate to the fore.
The terms are also used in other contexts. In particular, the term 'hard cap' is also used to describe a cryptocurrency's maximum supply, for example Bitcoin's fixed upper limit of 21 million units. If these limits in token sales rely only on the team's statement, they do not provide assurance; the sale contract and how the funds are managed must also be examined separately.
Last updated: · This content is for information purposes only and is not investment advice.