The minimum amount of funding required to launch a new crypto project is called the soft cap of the project. The launch phase is known as Initial Coin Offering (ICO), wherein the investors are given the first opportunity to invest in the token or coin of the particular crypto project. These funds are then used by the project founders to launch their project and pay for the necessary expenses.
To understand soft cap better, let us take an example. Suppose, the founder of the project comes to the conclusion that they require a sum of $10,00,000 in the form of funding for the successful launch and development of their project. Then, the soft cap of this particular project can be estimated to be $10,00,000.
The word cap in “Soft Cap” refers to the market cap of the token, which is calculated by multiplying it by the total number of tokens available with the price of one token. A crypto token with every coin valued at $1 with a total number of 1 million coins will have a market cap of $1 million. This then meets the soft cap requirements for the project required for launching it. A soft cap is different from a hard cap which is the total number of coins that shall ever be produced and thus, sold. The hard cap for the world’s largest crypto asset by market capitalization, Bitcoin, is 21,000,000.