Dutch auctions for NFT’s
With the increase in hype over NFT’s, and the associated bragging rights from owning one, NFT’s are commanding extremely high prices. The unstable market for such a product warrants an auction since this value is not entirely measurable through prediction. Hence, even traditional auction houses like Sotheby’s, have started selling NFT’s. While there are four auction types, NFT marketplaces and platforms are gravitating towards the dutch auction for their sales.
Dutch auctions consider all the bids given before settling on a ceiling price, then gradually drops as time passes. Dutch auctions are usually used to sell an item in a large quantity, which matches the style of NFT drops. As the price drops, it becomes more affordable, and demand increases. This means that you have to buy at your value price since waiting to buy below that price could mean not getting any quantity of the item. In the art world, Dutch auctions tend to encourage small scale investors. This translates to the NFT world by executing the total sales of a collection within a short period of time.
The dutch auction creates a few advantages for the NFT marketplace due to its natural characteristics. Prior to a drop, there is a lot of hype generated as many people want to mint the NFT. Since major blockchains have limited transactions per second, the demand for minting before a drop leads to an increased transaction fee. This is mitigated through the use of a dutch auction, as it spreads the buyers over a longer period of time (i.e. different price points) rather than everyone buying at once. This auction style also encourages people to pay above their value to re-route the excess minting fee from miners to artists or charities.
Source: https://medium.com/geekculture/what-is-a-dutch-auction-and-why-it-matters-in-the-nft-space-59d5d26369f9