A soft cap is the lower, minimum required funding threshold that a project team expects to raise during a token offering (ICO or pre-ICO). This amount reflects the level of investment without which launching and further developing the main product or service is considered impractical.
The soft cap serves as a safety mechanism for participants. If the stated minimum amount is not reached during the raise, the project is generally considered to have failed, and the collected funds are returned to contributors. This approach reduces the risk that the team will receive partial funding that is insufficient to carry out the stated plans.
Soft cap and hard cap
A soft cap is usually considered together with a hard cap, the upper funding limit at which the offering ends. The gap between these values shows the range of possible funding. When evaluating a project, investors pay attention to how adequate the stated soft cap is for the team's actual tasks, since an inflated or, conversely, a token minimum may indicate insufficient elaboration of the economic model.
