What are Hard Cap and Soft Cap? Evaluate ICO projects through Hard Cap & Soft Cap

Hard caps and soft caps are two important concepts that reach the maximum and minimum that a project can raise through ICO (Initial Coin Offering) round token sales. So what are hard cap and soft cap and how important are they?
What is Soft Cap?
Soft cap is the minimum amount of money that a project needs to raise by launching a token sale through an ICO event, to ensure that they have enough resources to develop and launch the project. In particular, ICO (Initial Coin Offering) is one of the popular funding rounds in the crypto market in 2017-2018.
Normally, if the set soft cap level is not reached, the project may not be implemented or operate as planned and money will be returned to investors.
In some other cases, the project may continue to operate with the money raised, even if they do not reach the set soft cap.
What is Hard Cap?
Hard cap is the maximum amount of money that the project can raise from selling tokens to investors through ICO. This means that once the hard cap has been reached, the token sale (or ICO) round will be closed and buyers can no longer participate in this capital raising round.
This helps ensure that the total amount of capital raised will not exceed the amount needed to implement the project, thereby protecting investors from depositing money into a project that is overfunded (overfunding). In particular, excessive fundraising shows a high level of interest from investors in the project, but it also causes a number of harmful effects:

• Ineffective capital management. If a project raises too much money, they may be tempted to spend it on unnecessary things.
• Decrease the token value, as the project may then issue additional tokens to meet increased demand. This can lead to token dilution, reducing their token value and overall value.

In addition, there are still some other cases where the amount of money contributed by investors is higher than the project hard cap set. At this time, the project can distribute tokens according to each person's deposit ratio, then the remaining balance will be returned to investors.
The importance of Soft Cap and Hard Cap
Regarding the hard cap aspect, it plays an important role not only in an ICO round/funding, but also in the entire cryptocurrency market because:
Realistic goals: Hard caps help ensure that the project has realistic goals, and the team is not asking for more capital than necessary. Thanks to that, it can be seen that the project has research and understanding of market needs, and a clear and responsible roadmap to achieve them.
Investor protection: Setting up a hard cap will help avoid excessive fundraising for the project, thereby helping to minimize negative impacts related to ineffective capital management or token value reduction. All in all, these help protect investors' interests in a more optimal way.
Limited supply: This helps create scarcity and prevent inflation for the token, increasing demand for the token and thereby increasing the value of the token the project issues.
In terms of soft cap, it helps ensure the sustainability of the project and creates trust for investors. Because after the end of the ICO, achieving the soft cap level demonstrates the project's commitment to being able to operate according to the set strategy and goals in a sustainable way.
Does every ICO have to have a Hard Cap and Soft Cap?
Not all ICO projects have hard cap and soft cap. In fact, fundraising projects in the cryptocurrency sector may or may not have hard caps and soft caps, depending on the specific method and strategy of that project.
For ICOs with hard cap and soft cap, it is called capped ICO. On the contrary, a project that organizes an ICO without a hard cap and soft cap will be called an uncapped ICO. Both forms have their own benefits and trade-offs.
A typical example of capped ICO is Brave, the project successfully conducted an ICO for BAT tokens on May 31, 2017 and raised a hard cap of 35 million USD in 30 seconds. After finishing, they "started" the work as planned without having to raise additional money.
In contrast, Tezos is a project that has performed an uncapped ICO. During the ICO event from July 1 - July 13, 2017, this blockchain network raised a total amount of up to 232 million USD in the form of XBT and ETH tokens because it did not set up a hard cap.
Although capped ICO events help the network operate better, because the amount of money raised is limited, there are some cases where the project does not have enough money to continue operating. And they must continue to make other rounds of funding after that.
That's why many projects have decided to carry out uncapped ICOs to increase the maximum amount of money that can be mobilized, thereby accumulating more money to develop the project without having to organize additional calling rounds. have always been different.
However, this also carries a risk that the token supply could increase out of control, reducing the value of the token and the network itself. Furthermore, in a volatile market like crypto, there is no complete guarantee that the project will succeed and bring profits to investors. Overinvesting in a project can increase costs and risks for investors.