Soft Cap

What Is a Soft Cap? 

A soft cap is the least defined amount for the collection of funds that a project team specified for its fund-raising through an ICO or IEO. 

The figure specified in a soft cap is notional and subjectively defined. This is the opposite of a hard cap, the maximum possible funds a team would want to collect. If a team cannot raise enough funds to reach its soft cap limit, it can return the funds to its investors. In contrast, other teams continue to work on their project with whatever money they manage to collect.

Soft caps are not firmly administered as they are just used to give a general idea of the amount a cryptocurrency startup wants to generate for its project. It is usually seen as a good practice for project teams to document why they need this amount and what they would use it for. This helps potential investors know where their money is going. Specifying a soft cap is not necessary as many projects manage to generate funds without defining a soft cap amount. 

Soft caps are, however, a part of the metrics used to assess ICOs. They help determine how experienced and effective a project team is and how detailed their groundwork has been. As a result, investors are commonly guided about being cautious about extreme low or high soft cap values. Both extremes can be because of the team’s inexperience and can be indicators of its illegitimacy. 

A detailed and planned-out explanation of how the soft cap will be used shows a team’s experience and legitimacy.