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During an initial coin offering (ICO) a hard and soft cap may be announced. These terms are seen as fundraising “goals.”
A soft cap is the bare minimum needed to keep the project alive. If the soft cap is not reached this could be a potential indicator of an unsuccessful project. Under most circumstances, if a soft cap is not met the project will be canceled and investors will receive a refund. However, some projects continue regardless of funding issues.
A hard cap is the maximum amount of capital a project is willing to accept. Often hard caps are set extraordinarily high and are rarely fully reached. If a project reaches its hard cap, it will no longer accept investments. Finding the right balance is important in determining these limits. A hard cap that is too low may lack funds needed to continue with a project, while a hard cap that is too high risks a diluted coin value. Therefore, it is key to maintain a balance between striving too high and striving too low when setting a hard cap.
In order for a project to be deemed trustworthy by the community, it is important for all elements of the project to be laid out. That way investors understand the value behind the hard and soft caps given and the future plans of the project depending on the capital raised.