If you’ve ever looked into ICOs, you’ll have come across these terms a fair few times. Each and every ICO has a hard cap and soft cap, but, what is a hard cap? And what is a soft cap?
What is a Hard Cap?
A hard cap is a threshold. It is the maximum amount of money an ICO can raise — it won’t accept any further investments if the hard cap has been reached.
This maximum figure may be set in Ether, Bitcoin, USD or any other compatible currency. It is established via the ICO smart contract, so it is written in code and immutable. This means that whatever happens, it cannot be changed.
The smart contract is programmed to stop accepting any further investments once the hard cap has been reached. If the hard cap isn’t reached, the smart contract will instead stop accepting investments when the pre-defined time limit is reached. It’s important to note that this is how ICO smart contracts are typically programmed to operate, but some may differ.
Pointless fact: Hard cap is sometimes written as hardcap, without a space.
What is a Soft Cap?
A soft cap is also a threshold. It is the minimum amount the ICO must raise in order to proceed — if an ICO doesn’t reach its soft cap, the smart contract will refund all investors.
The minimum figure can be set in Ether, Bitcoin, USD or any other compatible currency. Once it is set, though, it cannot be edited: it is completely irreversible, just like the hard cap.
Once an ICO smart contract has received the amount its soft cap is set to, the soft-cap condition is triggered. This means that the investors are no longer due a refund and the project must now go ahead with however much money it raises, whether it reaches its hard cap or not.
Note: If you’re an investor looking for ICOs to invest in, feel free to check out our How to Find ICOs to Invest In guide.