Hard Cap

What Is Hard Cap?

A hard cap is a digital asset's absolute maximum supply. A hard cap is basically a limit set by the blockchain's code on the absolute maximum supply of a specific cryptocurrency. A hard cap prevents any further creation/circulation of its units. 

It is typically thought to be beneficial since it promotes scarcity, which raises the value of each token. To get around this restriction, a cryptocurrency must change its basic settings, effectively generating a new cryptocurrency.

Working Mechanism of a Hard Cap

The phrase hard cap refers to the maximum number of tokens sold in an Initial Coin Offering (ICO). It refers to the most money the development team is ready to accept in exchange for its tokens at that early point of funding. 

If the hard cap is achieved during an ICO fundraising campaign, the tokens for that round are declared sold out. In other words, the ICO event's maximum target has been met, and the developers are no longer taking investor dollars in return for project tokens.

The development team has complete control over how high the hard cap is imposed, with the requirement to balance the top limit of the fundraising objective with the economic scarcity of the related tokens (and their considered worth). 

Even though this is controversial, some sites use the phrase hard cap to describe the maximum supply of a certain token or coin. In this situation, the hard cap would indicate the issuance limit set by a cryptocurrency's protocol. 

It sets the maximum number of tokens or coins that could ever exist on that specific blockchain network. Nevertheless, in this context, the word "maximum supply" appears to be much more relevant, as "hard cap" is widely used to define the maximum aim of ICO funding rounds.

Difference Between Hard Cap and Soft Cap

The term hard cap refers to the maximum amount of tokens that could be sold during an ICO crowdfunding campaign. In contrast, the term soft cap refers to the minimum viable funding for a project to begin development. As a result, the hard limit is typically set far higher than the soft cap, as it indicates a fundraising objective instead of a minimum viable target.