Soft caps are fundraising minimums while hard caps are fundraising goals
When discussing an Initial Coin Offering, some variation of the terms ‘soft cap’ and ‘hard cap’ are often used.
An ICO’s soft cap is the minimum amount that a project can be funded in order to be considered successful. This metric is set by the project’s developers, and is essentially the team’s way of specifying the minimum amount of money that is required for the project to continue.
Often, if a soft cap is not met, the team refunds all purchases and the project is considered unsuccessful. Other times, the project may proceed with however much was raised, even if the amount is under its soft cap. Without oversight, this is largely the decision of individual projects.
A hard cap, on the other hand, is the maximum amount that a project can be funded. This ceiling is also decided by the project’s creators, and in many cases any attempts to purchase a token or digital currency that has already met its hard cap will be refunded.
Essentially, a soft cap can be thought of as a project’s minimum funding amount required, while a hard cap can be thought of as a project’s goal. Many projects choose to employ a hard cap that far exceeds their minimum funding amount, while others may limit the amount in order to create a sense of scarcity for the digital currency or token.