Here 📚 you would learn how dutch onchain auction works.
General Terms and Definitions in Marketplace Auction
| Term | Meaning |
|---|---|
| Bidder or Buyer | An individual who participates in bidding activity to purchase an NFT in the marketplace. |
| Seller | An individual who sells an NFT via an auction in the marketplace. |
| Wallet Address | EVM compatible Public Wallet Address |
| Starting Price | Starting price is the maximum value price, which further extends the auction by decreasing the amount. |
| Reserve Price | The reserve price sets the minimum price for an auction item and guarantees it will not be sold for less than that amount. |
| NFT Contract Address | ERC721/1155 compatible smart contract |
| Token ID | Token ID refers to the unique identifier assigned to an NFT within its contract address and can be provided in a range. |
| Auctioneer | An auctioneer is a person or entity responsible for conducting auctions, setting prices, establishing bidding increments, and managing the sale of items to the bidder. |
What is Dutch Auction?
Dutch auction is a type of bidding mechanism in which an auctioneer starts with a very high price and gradually lowers the price until all the available units of the item being sold have been sold, or the reserve price has been reached, or the auction ends. This type of auction is also referred to as a descending price auction and Mojito APIs enables you to sell multiple sets of NFTs on your marketplace.
During a Dutch auction, buyers can purchase multiple NFTs if the auction is offering more than one unit of the NFT for sale. Buyers can continue to purchase NFTs until all the available units have been sold or until the auction reaches a predetermined reserve price.
For example, let's say that a Dutch auction is being held for a limited edition NFT, and the auctioneer has 10 units of the NFT available for sale. The auction starts with a high price, and the auctioneer gradually lowers the price over time. Buyer A may purchase the first unit of the NFT at a certain price, while Buyer B may purchase the second and third units of the NFT at a lower price.
As the auction continues, more buyers may purchase additional units of the NFT at lower prices until all 10 units have been sold. Alternatively, the auction may end before all units are sold if it reaches a predetermined reserve price. In this case, buyers who purchased units of the NFT during the auction will be able to own a unique and limited edition piece of digital art.
Additionally, our Mojito APIs supports rebate functionality for buyers who purchase NFTs during a Dutch auction. If the auction ends up with a lower price then what the buyer paid, they can claim the remaining funds as a rebate. This ensures that buyers always get the best possible deal during a Dutch auction.
Dutch Auction Example - Standard Approach
Following is one type of Standard Approach for Dutch Auction with rebate enabled for sale.
- Starting Price - $60
- Reserved Price - $10
- Reduce By $ - $4
- Reduce By Time (min) - 60
- Start Date & Time 4/4/2023 0:00:00
- End Date & Time 4/4/2023 12:00:00
Let's say following are the different users buying on different intervals.
| Username | Time of Buy | Purchase Price |
|---|---|---|
| User 1 | 4/4/2023 3:00:00 | $48 |
| User 2 | 4/4/2023 6:00:00 | $36 |
| User 3 | 4/4/2023 10:00:00 | $20 |
- This means that the starting price will decrease by a fixed amount at a regular time interval, such as every minute or every hour, until it reaches the end price, which is also known as the reserved price. Once the reserved price is reached, the auction ends.
- Here, the total time of the auction is 720 minutes, and there are 12 price reductions during that time.
- After all 12 price reductions, the end price will be $12, which is $48 lower than the starting price of $60.
Key note:
This approach involves starting the auction at a certain price and reducing it by a fixed amount at regular intervals until either all the units are sold out, or the reserve price is reached, or the end date of the sale is reached. Users who purchase items during the auction, such as User 1 and User 2, eligible for a rebate if the final price ends up being lower than what they paid.
Dutch Auction Example - Half Life Approach
Info:
In the example below, the price reduction rate will be 50% per half-life, meaning that the price will be reduced by half from the start of each half-life date and time.
Following is one type of Approach for Dutch Auction with half life and rebate enabled for sale.
- Starting Price - $104
- Reserved Price - $10
- Reduce By $ - $4
- Reduce By Time (min) - 15
- Half-Life time starts - 4/4/2023 00:00:00
- Start Date & Time - 3/4/2023 23:36:00
- End Date & Time - 4/4/2023 1:00:00
| Username | Time of Buy | Purchase Price |
|---|---|---|
| User 1 | 3/4/2023 23:46:00 | $104 |
| User 2 | 3/4/2023 23:55:00 | $100 |
| user 3 | 4/4/2023 0:08:00 | $50 |
| User 4 | 4/4/2023 0:15:00 | $50 |
| User 5 | 4/4/2023 0:30:00 | $25 |
| User 6 | 4/4/2023 0:45:00 | $12.50 |
- This means that the auction will start at a certain price, and the price will decrease by a fixed amount based on a time interval in minutes. Once the half-life time is reached, the price will start to be cut in half at regular intervals until either all units are sold out, or the reserve price is reached, or the end date of the sale is reached.
- In the specific example mentioned, the auction will last for a total of 85 minutes and the price will be reduced four times - once through normal reduction and three times by cutting the price in half. At the end of the auction, the final price will be $12.50, which is $91.50 lower than the starting price of $104.
- It's worth noting that buyers who purchase items during the auction, such as User 1, User 2, User 3, User 4 and User 5 are eligible for a rebate if the final price ends up being lower than what they paid.
Key note:
This approach involves starting the auction at a certain price and reducing it by a fixed amount at regular intervals until the half-life date and time. After the half-life time has started, the price reduction rate will be 50% per half-life, meaning that the price will be reduced by half from the start of each half-life date and time.
The auction will continue until all the units are sold out, or the reserve price is reached, or the end date of the sale is reached. Buyers who purchase items during the auction, such as User 1, User 2, User 3, User 4 and User 5, will be eligible for a rebate if the final price ends up being lower than what they paid.
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