Digital Currency

What is a capped vs uncapped ICO?

Capped and uncapped initial coin offerings (ICOs) are token sale structures used to raise capital. A capped ICO sets a limit on the funding accepted and the number of tokens that will be distributed. A downfall of capped ICOs is the exclusivity, as several ICOs have been known to sell out in less than 30 seconds. Therefore, many users increase the fee drastically in hopes of their transaction being picked up in a network block. Even so, capped ICOs are the most popular structure used in token sales as a means to create scarcity and value.

An uncapped ICO accepts an unlimited amount of funding. The goal of an uncapped ICO is to maximize the number of investors involved and raise the largest amount of capital possible. The most concerning risk is that the percentage of the given token supply is unknown. Therefore, investors do not know the value of each token until the sale has reached a close. Additionally, excess money also can lead to further internal problems within the organization raising the funds. However, an uncapped ICO offers a higher level of inclusion compared to a capped ICO.

Once a token sale structure is established, companies often announce hard and soft caps.