Raise Your Hat, Not Your Cap

Taking a look at over a thousand of projects waiting for their days to start off once they have passed the moderation stage we can say far too many projects have two things in common: first, they set their Hard Cap, or the maximum sum they are intending to raise during the campaign, not in accordance with their real necessities but with their brightest hopes to become millionaires right away, before ever providing a real product to the audience, and second, putting their Soft Cap, so the minimum expected sum to be raised, almost to the level of charity.

Let us speculate why both things are not just signs of faulty intention or disorder, but actually indicators that the project is very likely to deceive its customers, or even turn out scam in the nearest future.

At first, we all have to consider an incredibly high Hard Cap for most projects is in most cases unreachable and even dangerous for several reasons. One of those is that a hard cap of, for instance, $100 million is too difficult to be raised in the current conditions. Yes, months ago and before it was natural for a big project to collect substantial sums quickly, often without any good quality shown, but several things have changed: the market is getting full of low-quality products, the backer is getting more picky and the supply is growing faster than the demand. Here are the reasons why a hard cap too high to be collected scares a backer away:

  • the main one is that setting a hard cap way over the actual sum the project needs and setting it over the actual market value of the project makes a backer realize that even if this cap miraculously gets raised, it will consume all the demand for the token on the market and there will be no buyer for it after the ICO; once having been listed on exchanges after the campaign, the token price will inevitably drop due to low demand, therefore for a backer it will be both cheaper and safer to buy the token after the ICO, when the token hits exchanges and the product of the project is already deployed;
  • another reason is that a project’s ability to deliver a good product relies not solely on a new concept, but also on a fundamental research of the market and its expectations; if one is unable to run such studies, no backer is willing to support the project, since it appears obvious a good product shall not be built on guesses and dreams of a fresh entrepreneur, but it shall be based on solid investigation of the market and have its goals carefully estimated and calculated;
  • in addition to the two above, let us remind everyone backers normally make a judgement based on what they can see and analyze and not what one promises them, so a project expecting a high cap without a reasonable basis for it would be naturally considered a scam and therefore ignored.

Besides the described above mistake of letting the project’s hard cap skyrocket before the project itself, there is also the mentioned intention of many projects to provide a threshold level soft cap often 10 and sometimes even more times lower than their hard cap. That is nothing better than selling a project too high, for it tells a backer the project team underestimates the conditions and overestimates the product provided:

  • the first important point is that a low soft cap in the backers’ opinion does not seem to correspond with a high hard cap; again, this is not about a low soft cap itself but about a clearly designed project in which every part complies with the market standards; if a project sets a hard cap of, for instance, $20 million, and its soft cap of $1 million, it means either the hard cap is heavily overestimated and will cause all the problems described above, or that the soft cap is unduly understated, and thus, even if the soft cap is collected, the project might not have enough funds to start off and will probably take years to launch;
  • the second point to consider is that a soft cap is basically the border hitting which the project states it has gained enough support to start operating; if a project doesn’t reach its soft cap, it is required to refund all its backers — therefore a soft cap too low in comparison with a high hard cap is often a sign that the project neither realizes its true value and is hunting to collect as much as possible no matter what, nor it is actually willing to refund its backers in case of failure.

Altogether, we regard such seemingly minor aspects of a campaign as Hard Cap and Soft Cap as absolutely essential for they provide us with an opportunity to estimate the credibility of a project and financial wisdom of a team. Having said that, we hereby declare we will not welcome projects with unreasonably high hard caps and we will make it a requirement to set the soft cap not lower than 30% of the hard cap in order to make ICOs easier to evaluate and thus safer for backers.

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