What is Hard Cap in Cryptocurrency?
The term “hard cap” can be interpreted differently in crypto.
While some argue that it is the maximum amount of funds that a crypto startup can raise through a crowdfunding event such as an Initial Coin Offering (ICO) or Initial DEX Offering (IDO), others maintain that it is the maximum supply of a project’s token or coin.
In the preview of the latter, a project’s hard cap is the maximum amount of coins or tokens that will ever circulate and be traded in the secondary market. In this definition, the hard cap is, in essence, the maximum number of tokens that can ever be mined or released. Even so, the term “Max supply” could explain their stance better.
In either case, the maximum supply of a crypto project refers to the total number of coins or tokens that will ever exist.
For example, in the case of Bitcoin, the maximum supply or hard cap is 21 million. This figure is hard-coded in the protocol and cannot be changed. Accordingly, unless the community supports a change, it will be impossible for additional tokens to be released.
Having a specified hard cap on a crypto project creates scarcity. Subsequently, this drives up the value of the coin in question.
How to find a Project’s Hard Cap?
If we dig in on the first definition that the hard cap refers to the maximum funding a crypto project can receive from the community, it becomes abundantly clear why “hard cap” aptly fits this description.
A project’s hard cap is usually stated in the whitepaper. The technical whitepaper of a crypto project will break down the team’s plan, vision-mission, and how they plan to roll out their solution. At the same time, under the whitepaper, the team will break down their token types and other details like the hard cap during their funding round.
This is why it is essential to do your research before investing in any crypto project, starting with the project’s whitepaper. The hard cap of a new crypto project is under tokenomics, where their funding rounds and strategy is laid out.
To start, it is essential that you peruse their website. You will find a road map on their website and how the funds raised will be allocated. This will also show you if the project’s hard cap has been reached or not. The hard cap of a project can also be found on certain websites that promote upcoming crowd-funds.
Apart from the hard cap, there is also the soft cap. Let’s explore the difference between the two.
Hard Cap versus Soft Cap
While the hard cap refers to the maximum amount of money a new crypto project aims to raise in a crowdfunding campaign, the soft cap, on the other hand, is the least amount of funds needed for the project to proceed with development.
Traditionally, in the crypto sphere, when the soft cap is not reached, founders are compelled to refund the money of early investors, then postpone or cancel fundraising altogether.