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Glossary

Hidden Cap

November 21, 2023 - Around 4 mins mins to read

A Hidden Cap is a term that often comes up in the world of Initial Coin Offerings (ICOs), which are fundraising events where new cryptocurrencies or tokens are sold to investors. During an ICO, a company or project sets a target fundraising amount to meet its financial goals and launch its product or service. However, in some cases, the project team may choose to implement a hidden cap.

So, what exactly is a hidden cap? A hidden cap refers to a secret limit on the maximum amount of funds a project can raise during its ICO. This hidden limit is not publicly disclosed to investors and is known only to the project team. The primary purpose of having a hidden cap is to create a fair and level playing field for all participants, particularly smaller investors.

By keeping the cap hidden, larger investors or whales are not able to manipulate the market or alter their investment decisions based on the total amount raised. This ensures that smaller investors have an equal opportunity to participate and potentially benefit from the project’s success.

What is a Hidden Cap?

When a project decides to implement a hidden cap, they set a maximum fundraising target in private. They may also set a soft cap, which is the minimum amount the project needs to raise in order to proceed with its plans.

During the ICO, investors contribute funds in exchange for the project’s tokens or cryptocurrencies. The amount they can invest is usually limited based on a specific formula or on a first-come, first-served basis. The project team carefully monitors the total funds raised, ensuring it does not exceed the hidden cap.

Once the hidden cap is reached, the ICO ends, and no further investments are accepted. The exact mechanism for stopping the fundraising may vary depending on the project and the platform used to conduct the ICO. Some projects may choose to close the ICO immediately, while others may implement a phase-out period.

What are the benefits of a Hidden Cap?

Implementing a hidden cap in an ICO offers several benefits:

  • Fairness and inclusivity: A hidden cap promotes fairness by preventing larger investors from dominating the ICO and allows smaller investors to participate on a more equal footing.
  • Market stability: By preventing large investors from knowing the total cap, the project avoids sudden influxes of funds that could disrupt the market and affect the token price.
  • Reduced manipulation: Hidden caps minimize the potential for market manipulation by preventing large investors from strategically altering their investment decisions based on knowledge of the total cap.

What are examples of Hidden Cap Implementation?

Several projects have chosen to implement hidden caps in their ICOs. One notable example is the Polkadot project, which raised $145 million through a hidden cap ICO in 2017. The hidden cap was set at $24 million, allowing smaller investors to participate in the funding round and reducing the risk of large investors monopolizing the sale.

Another example is the EOS ICO, which took place over a year-long period and had a hidden cap of $4 billion. This cap was not publicly disclosed, creating an environment where all investors had an equal opportunity to participate.

What is the conclusion?

A hidden cap in an ICO is a secret limit on the maximum amount of funds a project can raise. It is implemented to promote fairness and inclusivity, prevent market manipulation, and create a level playing field for all investors. By keeping the cap hidden, larger investors are unable to alter their investment decisions based on the total cap, allowing smaller investors to participate without the fear of being crowded out. The implementation of hidden caps in ICOs demonstrates the evolving strategies within the cryptocurrency industry to ensure transparency and equal opportunities for all participants.

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Author

Coincu

Glossary

Hidden Cap

A Hidden Cap is a term that often comes up in the world of Initial Coin Offerings (ICOs), which are fundraising events where new cryptocurrencies or tokens are sold to investors. During an ICO, a company or project sets a target fundraising amount to meet its financial goals and launch its product or service. However, in some cases, the project team may choose to implement a hidden cap.

So, what exactly is a hidden cap? A hidden cap refers to a secret limit on the maximum amount of funds a project can raise during its ICO. This hidden limit is not publicly disclosed to investors and is known only to the project team. The primary purpose of having a hidden cap is to create a fair and level playing field for all participants, particularly smaller investors.

By keeping the cap hidden, larger investors or whales are not able to manipulate the market or alter their investment decisions based on the total amount raised. This ensures that smaller investors have an equal opportunity to participate and potentially benefit from the project’s success.

What is a Hidden Cap?

When a project decides to implement a hidden cap, they set a maximum fundraising target in private. They may also set a soft cap, which is the minimum amount the project needs to raise in order to proceed with its plans.

During the ICO, investors contribute funds in exchange for the project’s tokens or cryptocurrencies. The amount they can invest is usually limited based on a specific formula or on a first-come, first-served basis. The project team carefully monitors the total funds raised, ensuring it does not exceed the hidden cap.

Once the hidden cap is reached, the ICO ends, and no further investments are accepted. The exact mechanism for stopping the fundraising may vary depending on the project and the platform used to conduct the ICO. Some projects may choose to close the ICO immediately, while others may implement a phase-out period.

What are the benefits of a Hidden Cap?

Implementing a hidden cap in an ICO offers several benefits:

  • Fairness and inclusivity: A hidden cap promotes fairness by preventing larger investors from dominating the ICO and allows smaller investors to participate on a more equal footing.
  • Market stability: By preventing large investors from knowing the total cap, the project avoids sudden influxes of funds that could disrupt the market and affect the token price.
  • Reduced manipulation: Hidden caps minimize the potential for market manipulation by preventing large investors from strategically altering their investment decisions based on knowledge of the total cap.

What are examples of Hidden Cap Implementation?

Several projects have chosen to implement hidden caps in their ICOs. One notable example is the Polkadot project, which raised $145 million through a hidden cap ICO in 2017. The hidden cap was set at $24 million, allowing smaller investors to participate in the funding round and reducing the risk of large investors monopolizing the sale.

Another example is the EOS ICO, which took place over a year-long period and had a hidden cap of $4 billion. This cap was not publicly disclosed, creating an environment where all investors had an equal opportunity to participate.

What is the conclusion?

A hidden cap in an ICO is a secret limit on the maximum amount of funds a project can raise. It is implemented to promote fairness and inclusivity, prevent market manipulation, and create a level playing field for all investors. By keeping the cap hidden, larger investors are unable to alter their investment decisions based on the total cap, allowing smaller investors to participate without the fear of being crowded out. The implementation of hidden caps in ICOs demonstrates the evolving strategies within the cryptocurrency industry to ensure transparency and equal opportunities for all participants.

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