Understanding ICO Caps
By Cal Wong | Blockchain companies have dazzled the mass markets with reports of mega-fundraising efforts. Uncertainty, volatility and infinite possibilities have fuelled the roughly 685 successful Initial Coin Offerings (ICOs) in 2018. From January to July, the total market capitalisation of ICOs alone amounted to US$17,489,068,062. With dizzying figures like these, it is important to be informed about any ICO process, including the understanding of ICO Caps. There are generally three types of caps in an ICO: Soft Caps, Hard Caps, and Unlimited Caps.
Hard Cap ICOs set an upper limit on how much funding they’ll accept. It is a threshold often set in fiat currency terms, or some sort of cryptocurrency, such as Ethereum (ETH). Any funds raised that exceed the predetermined Hard Cap after the predetermined cutoff date is returned to the investor.
Soft Caps and Hard Caps go hand-in-hand. Soft Caps are often a barometer of a crypto company’s place in the wider ecosystem. In the uncertain market of ICOs, it can be difficult for blockchain companies to understand or gauge interest in their offering, and for many, the soft cap can be the first real indication of acceptance by the market, as well as the minimum amount they will be happy with in order to progress with their technology. Achieving a Soft Cap will trigger the Hard Cap target.
A good example is HARA Token, a utility token created to help Indonesian farmers sell their crops for reasonable prices. HARA have set their token Soft Cap at $5,000,000, and a Hard Cap of $25,000,000. The social impact token has detailed on their website the reasons for these limits and how these funds will be allocated.
On the other end of the spectrum, Unlimited Cap ICOs are willing to take as much in funding as they can get. There are obvious benefits to this: more funds means more room for teams to develop their technology; it also means that all investors’ demands for coins can be met. The downside, of course, is that there is no transparency in unaudited, uncapped ICOs and teams can easily pocket funds with no one the wiser.
Cap targets can say a lot about the intentions of a company. Just as a ‘traditional’ company is expected to explain their targets and calculated reasons for raising capital through an Initial Public Offering (IPO), similar levels of scrutiny should be given to an ICO.
ABOUT THE AUTHOR
Cal Wong is a journalist turned marketing and branding consultant who actively advises Fintech and blockchain startups across Asia on growth hacking techniques through content, social and distribution methods. As a former banker, he has always been analytical, and continues to use data to drive both his reporting and consulting. Find him on LinkedIn, or Cal.Wong@prnasia.com.