Hard Cap refers to the maximum amount of capital a project aims to raise. It is one of the leading parameters followed by crypto analytics websites and project communities.
What is Hard Cap?
In the ICO process, the hard cap refers to the maximum amount of tokens that can be sold. The hard cap specifies the maximum amount of money that the development team is ready to accept in exchange for their tokens in the first phase of funding. The hard cap also determines the estimated value of a token before it enters the market. Most cryptocurrency projects often set hard cap levels too high. It is not always possible to reach these levels. Some of the very famous or hyped projects can reach these levels.
Projects are often considered a successful sale for this round when they reach the hard cap level, as the hard cap determines the maximum capital needed. Once ICO activity reaches its maximum target, developers stop accepting additional funds from investors in exchange for project tokens. If a project reaches the early hard cap level, the ICO phase will end early. Tokens belonging to the project will also be distributed earlier than usual.
The only authority to decide how much the hard cap (upper limit) can be is the development team. While determining this parameter, they try to do so by considering the economic scarcity and perceived value of the token. The hard cap target may vary depending on the money and funding needed. The sparsity of tokens is directly related to the upper limit. The developer team’s responsibility is to balance token sparsity and caps.
Soft Cap (Lower Limit)
The term soft cap refers to the minimum amount of funds needed to start developing a particular project. The hard cap (upper limit) is the maximum number of tokens that can be sold, while the soft cap (lower limit) specifies the amount of funds the project needs before it starts. The hard cap (upper limit) is usually at a higher level than the soft cap (lower limit). This is because it aims to raise maximum funds rather than a minimum viable target.
