Topic: WISE UP! - Hard Cap and Soft Cap in ICOs (Read 84 times)

This post intends to explain what is a hard cap and a soft cap on an ICO and why you should care about it. I write it because I think that many people are just throwing their hard earned money away on certain ICOs

- Soft Cap: If the ICO does not rise at least this amount the project will not go ahead. You should get reimbursed in that case.

- Hard Cap: If the ICO rises this amount, it will stop accepting funds.

What should you understand to make sense of this and avoid throwing your money away:

A project must have a maximum and a minimum viable budget. If it is too low the project is at risk because there are not enough funds for it, so if the Soft Cap is not achieved is better not to start.
 
You may think that there is no need for a "hard cap" that is, the more money they rise the better. There are two reasons why this is not correct. First. if a project has much more money that needed it is likely to mismanage the funds and waste money in unnecessary activities. Also the team size and ability will not be adequate. Second, the dilution and the possibility of growth. I will write a post on it later on.

IN PRACTICAL TERMS

Do not invest on a project that:

a) Does not even have a soft and hard cap.

b) Is asking for too little money. Use your judgement and see if they will have enough to finish with their soft cap.

c) Is asking for too much money. Use your judgement and see if they are asking for much more that they need or more than the tokens are really worth.

d) Hard Cap is much more than Soft Cap. Again, use your judgement, but normally a hard cap should not be more than 2x or 3x the soft cap.

Let us know about other criteria you have to validate Hard and Soft Cap.