Hidden Cap Definition
A hidden cap is a fundraising limit set in secret by a cryptocurrency project during an Initial Coin Offering (ICO). It is a strategy used by project teams to either gauge genuine market interest or prevent larger investors from monopolizing the sale.
Hidden Cap Key Points
- A form of fundraising limit for an ICO that is not publicly disclosed.
- Used as a method to prevent market manipulation and large-scale monopolistic investments.
- Allows for a more even distribution of coins or tokens by ensuring only investors who are genuinely interested in the project get involved.
Who Uses a Hidden Cap?
The hidden cap strategy is primarily used by project developers and ICO organizers in the blockchain and cryptocurrency industry. Their target audience is generally the potential investors who hold an interest in these projects.
What is the Purpose of a Hidden Cap?
The key purpose of a hidden cap is to ensure that the token distribution in an ICO is as wide and fair as possible. By not disclosing the maximum fundraising target, the organizers can prevent large investors or ‘whales’ from taking up a significant majority of the available tokens, allowing smaller investors an opportunity to participate.
When is a Hidden Cap Used?
A hidden cap is typically implemented during the Initial Coin Offering (ICO) of a new cryptocurrency project. It remains undisclosed until the team decides to reveal it or until it is reached during the fundraising process.
Where is a Hidden Cap Implemented?
The hidden cap is implemented within the fundraising platform of an ICO. The investors are not able to see the cap, unlike regular ICOs where the soft cap and hard cap are usually transparently presented.
Why is a Hidden Cap Important?
In the context of ICOs, a hidden cap is important as it helps to prevent the centralization of token ownership, promotes fairness, and mitigates the risk of price manipulation. It allows smaller investors to get involved and it also makes it more difficult for opportunistic investors to game the system.
How Does a Hidden Cap Work?
The ICO organizers set a fundraising target, but do not disclose it to the public. Instead, they continue to collect funds until the hidden cap has been met. At this point, it is revealed and the ICO concludes. If the market’s demand for the token is incredibly high, a hidden cap can often lead to a faster than expected end to the ICO.
