Hidden Cap Key Points
- A hidden cap is a fundraising technique used by ICOs and token sales.
- It involves not disclosing the maximum fundraising goal to the public.
- This strategy is designed to prevent large investors from monopolizing the sale.
- It can create a sense of urgency and encourage wider participation.
- However, it also carries potential risks, including lack of transparency and investor uncertainty.
Hidden Cap Definition
A hidden cap is a strategy used in initial coin offerings (ICOs) and token sales where the maximum fundraising goal or “cap” is not publicly disclosed. This approach aims to prevent large investors or “whales” from dominating the sale and to encourage broader participation.
What is a Hidden Cap?
A hidden cap is a fundraising limit that the creators of an ICO or token sale choose not to disclose to the public. Instead of setting a publicly known maximum goal, the cap is kept secret. In some cases, it might not be predetermined at all, but rather dynamically set based on the fundraising progress.
Who Uses a Hidden Cap?
The hidden cap strategy is used by blockchain startups and projects that are conducting an ICO or token sale. These entities might opt for a hidden cap to encourage more diverse and widespread participation, rather than having a large portion of the tokens bought up by a small number of big investors.
When and Where are Hidden Caps Used?
Hidden caps are used during the fundraising phase of a blockchain project, specifically during an ICO or token sale. This strategy can be employed by projects all around the world, regardless of their geographical location, as ICOs and token sales are typically conducted online.
Why Use a Hidden Cap?
A hidden cap can create a sense of urgency and mystery around a token sale, potentially attracting more participants. It also aims to prevent the monopolization of the sale by large investors or “whales”. This can help to create a more diverse and decentralized token ownership, which is in line with the principles of blockchain technology. However, it also carries risks as it lacks transparency and can cause uncertainty among potential investors.
How Does a Hidden Cap Work?
In a token sale with a hidden cap, the maximum fundraising goal is not disclosed. Investors do not know the total amount the project aims to raise, nor when the sale will end. The sale continues until the hidden cap is reached. This can create a sense of urgency among investors, as they do not know when the sale might suddenly close. However, it also requires a high level of trust from investors, as it lacks the transparency of a known, fixed cap.
