What are Dutch Auctions in NFTs?

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June 14, 2024

Who would have guessed that the Tulip mania of the 1600s in the Netherlands, or perhaps even the market auctions of ancient Babylon, would find their way into some of the technology used by today’s most forward-thinking brands to reach their consumers? Often, it’s the innovations of the past that inspire the movements of the future — and the Dutch Auctions of web3 are an example of this curious and captivating trend in technology.

Some auctions are built different 

Unlike more traditional auctions (think: “Do I hear $100,000? Sold to the gentlemen in the top hat”), where prices grow incrementally from the bottom up, Dutch auctions are built differently. They start at the highest price. That number decreases until it meets a predetermined reserve price or a participant wins the final bid. 

While Dutch auctions were originally intended for goods that needed to be sold fast (tulips, fresh produce, your dad’s REO Speedwagon collection), they’ve proved successful in web3 to sell digital assets from NFT collections through smart contract technology. Instead of getting into a bidding war with a deep-pocketed spender, Dutch auctions allow more patient (or hesitant) buyers to wait until they can jump in on the opportunity at a price point they feel more comfortable with.

For example, a Dutch auction may look like the following:

  • Starting price: $1,500 (or .43 ETH)
  • Reserve price: $450 (or 0.13 ETH)
  • NFT prices decrease in increments based on determined parameters
  • Customers bid and purchase NFTs as the collection sells out and prices lower
  • The collection’s market value begins to take shape
  • The last buyer purchases the remaining NFT for $900 (and the collection has sold out)

Though the bidding and price mechanism is relatively simple, traditional Dutch auctions can historically require multiple moving parts that can be difficult to execute in normal circumstances, where sellers must manually manage thousands of assets, bids, and ownership and fund transfers. Web3 changes that, adding a new level of accessibility to the age-old mechanics via the power of blockchain technology.  

Benefits of Dutch auctions

Let’s recap a few more reasons Dutch auctions can reduce friction and improve the bidding experience for collectors, appealing to brands who want to sell digital assets. 

⚖️ Establishing fair market value 

Finding the right price for NFTs can be difficult, especially for brands newer to selling digital assets and consumers who are less experienced in bidding for NFTs and don’t want to get ripped off. 

Since Dutch auctions start with the highest prices and slowly decrease as more NFTs are bought, the fair market value gradually reveals itself throughout the sale. For sellers, Dutch auctions can be designed to sell through an entire collection and, as a result, achieve the highest possible average selling price. Win-win. 

😌 Comfortable experiences for bidders

Successful bidding, especially in NFTs, often requires patience, curiosity, and confidence in what you’re buying. Dutch auctions check these boxes, allowing customers to hold off until a collection provides a price they’re comfortable with while injecting some good old-fashioned FOMO, which might be the missing link needed to jump toward a (potentially even higher) bid before a collection sells out. Brands can deeply benefit from this evolving mindset, offering their customers a unique and accessible bidding framework that can still secure high price points for collections  — another win-win. 

📈 Optimized solution for large collections

While blue-chip or fine art NFTs often command high-price points through limited quantities, brand NFT collections often focus on engaging larger communities via larger supply. Dutch auctions can be an ideal distribution method for doing just that, offering a practical, democratic, and transparent bidding experience for selling or giving away their NFTs in bulk. This automated method can remove the need to hold multiple auctions with different price points, reducing overhead (and headaches). 

Dutch auctions in action 

From web3-native brands like Bored Ape Yacht Club and Art Blocks to historic consumer companies like Coca-Cola, Marvel, and Adidas, Dutch auctions have experienced substantial adoption over the past few years. The dynamic auction technique has been used — and built — by our team at Mojito for our ongoing partnership with Mercedes-Benz NXT, the German automaker’s web3 arm. 

For the initial drop of the partnership in 2023, our white-label Dutch auction solution and rebate feature helped facilitate the sale and distribution of 2,694 digital collectibles, each a digital reimagining of one of Mercedes-Benz's most iconic designs unfolding across seven eras, designed by generative artist Harm van den Dorpel. This technology built by our web3 studio provided seamless integrations, transparent executions for bids, automatic transfer of funds and ownership, and a smooth bidding experience for seasoned bidders and newbies alike. 

Want to learn more about how Mojito can find — and build — the white-labeled NFT auction solution that’s a perfect fit for your brand and community? Click here to book a demo, and we’ll get your started. 

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