Understanding Soft Caps, Hard Caps & Emission Schedules
A soft cap and hard cap are fundraising goals. A hard cap is the absolute upper limit a team will take. Whereas, a soft cap is more speculative. A soft cap is typically a lower limit, more like how much a team is aiming to raise. If a team receives donations exceeding their hard cap, the funds are immediately returned to investors.
SOFT CAPS VS HARD CAPS
When evaluating an ICO, Most prospective investors understand the significance of capped and uncapped ICOs. But many still don’t understand the difference between soft caps and hard caps, or understand token emissions schedule. These are details we examine closely for members of our premium Coinist Insiders Network where we search for early stage tokens that have the markings of the next big crypto. In this post, we’ll introduce you to, and break down why these things matter, and why we use these metrics when evaluating both ICOs and existing coins within our Insiders Network.
In our keys to a successful ICO, we broke down the difference between an uncapped and capped ICO, which are essential to understand. A capped ICO sets a limit on how much funding they’ll take in. Excess money received after the cutoff is returned to the investor. An example is Brave, the blockchain browser whose BAT token pulled in $35M in 30 seconds. Brave set a goal and stuck to it. They got the funding they wanted, and then they got to work.
An uncapped ICO takes as much as they can get. Most of the biggest ICOs were uncapped. Tezos, for example, pulled in a staggering $232 million. It’s currently one of the largest ICOs in our biggest ICOs of all time graph. The plus of an uncapped ICO is the team has more funds to work with, and more investors get the tokens they want. The downsides are that the tokens could be worth less than if the ICO was capped. Many investors are also leery of giving development teams such huge sums of money. Tezos has had its own problems lately, as we’ve been covering.
A soft cap and hard cap are fundraising goals. A hard cap is the absolute upper limit a team will take. Whereas, a soft cap is more speculative. A soft cap is typically a lower limit, more like how much a team is aiming to raise. If a team receives donations exceeding their hard cap, the funds are immediately returned to investors. Failure to do this is typically a red flag for investors. If a team doesn’t reach their soft cap, funds are sometimes returned as well. The project is essentially on life support then. However, there is some ambiguity around a soft cap, and whether or not the team returns funds or decides to move forward regardless.
A real-world example is Assetreon Energy, a token whose ICO is ongoing. Assetron published their soft cap figure of $170,000, and hard cap of $3.35 million, in the weeks prior to the ICO. They also included a detailed breakdown of why those numbers were picked. The figures were calculated by accounting for expenses like staff, infrastructure, office payment, developers, and so on. It’s important to investors that the soft and hard caps have a basis of some sort.
TOKEN EMISSION CURVE
One key piece of knowledge when evaluating a coin is the supply. This, along with price, determines the market capitalization, as we’ve discussed elsewhere. But equally important is knowing how many coins will be mined, and how. The schedule of how coins will be mined is referred to as the emissions curve, or emissions schedule.
In a nutshell, minable cryptocurrencies generally start out easy to mine, to incentivize potential miners when the coin is of minimal worth. As the coin becomes more desirable, the mining rewards decrease and the difficulty ratchets up. Today, Bitcoin is almost impossible to mine without specialized equipment and lots of electricity.
Understanding the emissions curve isn’t just important for miners, although it does help them pick and choose which coins to mine. The emissions curve helps anticipate how valuable a currency will be over time. Although there are mitigating factors, if tons of a new coins are being dumped onto the market daily, the value will fluctuate drastically. A coin that’s been mostly mined will likely be less volatile.
Different coins have different emissions schedule. DogeCoin, originally conceived as a joke, cranked out 100 billion coins inside two years. By comparison, only 21 million Bitcoins will ever be minable. One coin with a particularly unique emissions schedule is Monero. A anonymous cryptocurrency, Monero has what is referred to as a constant tail emission. The amount of new Monero mined is gradually reduced. The end state is that the amount produced will equal that which has been lost. Coins can disappear due to lost keys, hard drives thrown away, tokens being burned – most frequently, human error. Monero aims to match this amount lost with the amount produced, to maintain a constant supply. It’s a novel idea that could provide a unique twist on cryptocurrency mining.
In between hard caps, soft caps, market caps, uncapped ICOs, capped launches and more, there’s a lot to keep track of when evaluating an ICO and the subsequent coin. But it’s all important. The next time you’re dicing up the prospects of another ICO or coin, keep in mind their caps and emissions schedule .
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