What Is Hard Cap?
A hard cap is the limit placed by a blockchain’s code on the absolute maximum supply of a particular cryptocurrency, A hard cap doesn’t allow any further creation/circulation of its units. It is generally understood to be positive in nature as it creates scarcity, which drives up the value of each token. To bypass this limit, a cryptocurrency has to change its underlying parameters, essentially creating a new cryptocurrency.
A hard cap is a parameter, strictly monitored by the project’s community and crypto analytics websites. It can be altered by errors in the code (like the infamous Bitcoin 184M inflation bug, which broke the 21M limit before being fixed), as a fix by developers in extraordinary situations and also through malicious action (provision in code for extra minting for illicit gains and extraction of most value by gaining “extra tokens”).
In 2020,Yearn Finance’s YFI governance token shot up to over $40,000 in value largely due to its small hard cap of 30,000 tokens, while the MEME token, initially created as a piece of satire on the DeFi and non-fungible token (NFT) industry, exploded in value thanks to an airdrop and its even smaller cap of only 28,000 tokens.