What is Soft Cap?
Crypto Glossary Definition
The minimum amount of money raised in an ICO in order to consider it a success.
Why Soft Cap Matters
A soft cap is the minimum amount a token sale aims to raise for the project to proceed as planned — if it isn't reached, some projects refund contributors rather than launching underfunded (this isn't universally honored, so it's worth checking a project's specific terms).
Soft Cap in Practice
A new project planning its token sale sets two funding targets: a soft cap representing the minimum needed to actually build the product as described in its roadmap, and a much higher hard cap, the absolute maximum the sale will accept regardless of demand. As the sale progresses, contributions trickle in slowly, and by the closing date the project has raised only a fraction of that amount, well short of its stated soft cap. Because the team had publicly committed to refunding all contributors if the soft cap wasn't met, they issue pro-rata refunds back to every wallet that participated rather than attempting to launch a product they no longer have adequate funding to build. Not every project honors this commitment as cleanly, however, and some have quietly proceeded with development on a fraction of their intended budget, or simply used the soft cap language as a marketing device to imply investor protection that isn't actually enforced by the token sale's smart contract. For that reason, experienced ICO participants read the specific refund terms and check whether the soft-cap mechanism is coded directly into the sale contract, rather than assuming a stated soft cap alone guarantees their money back if targets aren't hit.
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