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What Is Soft Cap?

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Soft Cap

The minimum amount that an initial coin offering (ICO) wants to raise.

What Is Soft Cap?

Softcap refers to the minimum defined limit for the collection of funds specified by a project’s team for its fund-raising (ICO, IEO, etc.). It is speculative in nature and arbitrarily defined. This is in contrast to a hard cap, which is the maximum possible funding that a team is looking to collect. If a team is unable to raise funds beyond its soft cap limit, it sometimes returns the funds to its investors, while others continue to develop the project with the money that they collected.

Soft caps are not strictly enforced since they are simply a general idea of the amount that a cryptocurrency startup/organization is expecting to raise for a project. It is typically considered good practice for teams to inform any potential investors as to why they need this amount and what they would be using it for. However, they aren’t entirely necessary, since many teams have managed to raise funds without defining a soft cap.

Analyzing ICO metrics such as soft caps is also a way to gauge a team’s experience and understanding of what they are trying to accomplish. For instance, investors should be wary of abnormally low and high soft cap values, which signal both the team’s inexperience and are potential red flags regarding its legitimacy. On the other hand, a well-defined and properly-conveyed justification of the soft caps shows a team’s experience and legitimacy.

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