What is Soft Cap and How Does It Affect Crypto Projects?

Soft cap is one of the factors that influences the success of an ICO (initial coin offering). So, in this article, we will discuss soft cap and its impact on the crypto world.

Crypto is a field full of innovation and opportunity. Every day, there are many new crypto projects emerging, offering diverse solutions and services to users.

However, to start and develop a crypto project, sufficient funds are required. One way to raise funds is to conduct an ICO, where a crypto project sells a portion of their coins or tokens to investors.

However, not all crypto projects are successful in raising funds through ICOs. There are many factors that influence the success of an ICO, one of which is the soft cap. What is a soft cap and how does it affect crypto projects? Let's discuss it in this article.

What is Softcap?

Soft cap is the minimum amount a crypto project wants to raise through an ICO. This amount is usually determined by the project team based on the estimated costs required to launch and develop the project. Soft cap is speculative and arbitrary, because there are no standard rules governing it.

Soft cap is different from hard cap, which is the maximum amount a crypto project hopes to raise through an ICO. The hard cap is usually determined by the total number of coins or tokens that the project will create and sell. The hard cap is fixed and limited, as it cannot exceed the number of coins or tokens available.

How Does It Influence the Crypto World?

Soft cap has several impacts on crypto projects, including:

Determining the fate of crypto projects

By setting a soft cap, the project team can find out whether their project is worth continuing or not. If the project team successfully reaches or exceeds the soft cap, they can launch and develop their project according to plan.

If the project team fails to reach the soft cap, they can cancel their project and return the funds to investors, or continue with their project with the funds raised.

Shows the quality and credibility of the crypto project

By establishing a soft cap, project teams can demonstrate that they have conducted thorough analysis and planning of their project needs and goals.

A soft cap can also show that the project team has high standards and quality, and is not careless in raising funds.

Attracting the interest and trust of investors

By establishing a soft cap, the project team can demonstrate that they have a clear and realistic vision and mission. A soft cap can also show that the project team has commitment and responsibility towards investors.

Investors will be more interested and confident in projects that have a fair and reasonable soft cap, rather than projects that do not have a soft cap at all or have a soft cap that is too low or high.

Example of Soft Cap

The following are some examples of soft caps from crypto projects that have or are currently conducting ICOs:

Ethereum

This crypto project that provides a platform for running decentralized applications (dApps) conducted an ICO in 2014. The soft cap set by the project team was 31,529 BTC, which was equivalent to around $18.4 million at that time. 

Ethereum managed to raise around 31,591 BTC, which is equivalent to around $18.5 million, or 100.2% of the soft cap.

EOS 

This crypto project, which provides a platform for running large-scale dApps, conducted an ICO in 2017. The soft cap set by the project team is none, or unlimited. 

EOS managed to raise around 7.12 million ETH, which is equivalent to around $4.1 billion, or unlimited of soft cap.

Filecoin 

This crypto project that provides a decentralized data storage network conducted an ICO in 2017. The soft cap set by the project team was $40 million. The project team raised approximately $257 million, or 642.5% of the soft cap.

Read also:

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What Is Cross-Border Trading?

What is an Initial Coin Offering (ICO)?

DISCLAIMER: This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.