NFT Auctions: The Ultimate Guide for Brands

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August 31, 2023

NFTs are an effective way to build brand community and expand your market reach. But once you mint your NFT project, the game isn’t over. You have to get it out into the marketplace and distribute your collection. 

NFT auctions are one of the most popular ways to sell digital assets. 

In this article, we’ll review everything you need to know about NFT auctions to win in the space (and not get left behind).

What are NFTs?

“NFT” stands for “non-fungible token.” 

A non-fungible token is a digital asset recorded on a public decentralized ledger, called a blockchain. It can be verifiably owned and impossible to forge. 

Today, NFTs often involve digital art and creative endeavors, like digital art pieces or trading cards. These assets lead to high-potential use cases like memberships, customer loyalty programs, exclusive events, and more. 

What is an NFT auction?

Onchain NFT auctions work similarly to traditional auctions. The primary differences are focusing on an NFT as the asset, the blockchain, and the online experience.

One precursor to NFT auctions would be eBay and other online auction sites where visitors would spot something they wanted and virtually place a bid. They would follow the auction and make incremental bids if they wanted to win and, at the end of the auction, own the item.

But today, NFT auctions are a better and safer option because they link to smart contracts, public ledgers using blockchain technology, and cryptocurrencies. 

When someone wants to participate in a company’s NFT sale, they’ll visit its branded auction. Companies can partner with white-label engagement platforms like Mojito to create a smooth, efficient, and successful launch.

Once the NFT auction is ready, visitors can connect their wallets to the site and start bidding. 

Fans want to dive into the brands they love, and collectible NFTs are the best way to fire up the community. There’s nothing better than a passionate customer base that’ll move your brand forward. And NFT auctions supercharge that movement.

How do I launch an NFT auction
NFT auctions create a dynamic and thrilling drop for your collection

How NFT auctions work

While NFT auctions might resemble a traditional or online auction, there are some clear differences. 

Web3 technology has revolutionized the efficiency and security of transactions, and NFT auctions take advantage of those innovations.

Smart contracts play a pivotal role in the process. They establish the parameters for the transaction and auction rules. 

Smart contracts can define the start and end time, minimum bids, bid increments, and a reserve price. 

When a buyer meets all the criteria as the highest bidder, the smart contract and connected wallet automatically initiate the transaction and transfer of ownership (which is recorded on the public blockchain).

Unique ownership with blockchain

When NFTs became a big topic in the media, the first question most people asked was, what does digital ownership actually mean?

After all, what’s the difference between a JPEG and an NFT if graphics and pictures are easily accessible online?

Your NFT ownership is specifically tied to you—no one else can claim it. This concept revolutionized digital assets and made tangible ownership possible. The blockchain works as a public ledger that records the transaction made, and each NFT has an identifier, much like a serial number, representing one version. 

Even if the NFT is part of a serialized collection, you own yours (similar to the millions of iPhones in existence—you physically own a single, identifiable device). 

When you sell an NFT through the marketplace, the blockchain records that transfer of ownership.

Types of NFT Auctions

Below are the most popular ways a brand may hold an auction:

1. English Auction (Normal Auctions)

A foundational NFT auction requires potential buyers to bid for the asset. The highest bidder wins the NFT and becomes its owner. 

Auctions remove the lid for the highest selling price possible by letting the market decide. But, like traditional auctions, you risk undervaluing the asset. That’s why proper execution and market distribution play an essential role in the auction process. 

You can expect an auction to look like the following: 

  • Starting price: $100
  • First bid: increased to $200
  • Second bid: increased to $300
  • Additional bids: accumulated to $800
  • Last bid: $950 (the highest bidder wins)
  • End time: auction closed

2. Dutch Auction

Unlike a traditional auction, Dutch auctions start at the highest price and slowly decrease until it meets the reserve price or the bidder wins the final asset. It’s designed to sell through an entire collection and, in turn, achieve the highest possible average selling price.

In a type of reverse bidding, the going price lowers until someone makes the bid, determining the current market value.  

The auction continues for the NFT collection, selling each digital asset. This is an excellent strategy for NFT drops. Hesitant customers can wait until they can jump in on the opportunity but at a price point they feel comfortable with.

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

  • Starting price: $1,200
  • Reserve price: $350
  • NFT prices decrease in increments based on determined parameters
  • Customers bid and purchase NFTs as the collection sells out and prices lower
  • The collection starts to establish its worth
  • At the end of the drop, a buyer bought the last NFT for $700 (and the collection has sold out)

Dutch auctions test the value of an asset in a more controlled environment and offer an effective way to drop a collection. While it doesn’t have unlimited earning potential since there is a set high price, you can test consumer behavior and get the most possible within your parameters (and identify the fair sale price).

3. Buy now

While technically not an auction with bidding increments, “buy now” offers a way to showcase a set price, and the quickest buyer can win ownership. 

Brands can include NFTs within the marketplace ecosystem and offer an asset for eager customers and fans to immediately jump after. Brands and sellers have total control over the price.

If you want to learn more about these types of auctions, web3 trends, and analytics, sign up to receive our newsletter with 2,000+ other agency leaders.

Sotheby's NFT Auction
Our partner Soteby's brought in over $10.9 million in sales from their 3AC NFT auction

How much does the average NFT sell for?

Just like any digital market, prices can drastically vary. 

Much depends on your brand equity, the perceived value of the asset, the marketing strategy, and your customer’s passion for the brand. Thankfully, NFTs can help grow all of these markers. 

NonFungible.com published a 2022 market report stating that the average individual NFT value in the year's first half was $823.50. On the other hand, Beeple, the digital artist, sold an NFT for $69.3 million dollars in 2021, making him one of the wealthiest living artists in the world. And just one NFT from the CyptoPunks collection can sell in the millions.

While many factors will influence how much your brand can sell an NFT for, you can partner with a platform and service that can build your strategy and infrastructure to increase and position you for a successful and valuable launch.

Key concepts in NFT auctions

Below is a list of essential phrases and words that may come in handy:

  • Bidding process is when buyers place incremental offers for the desired NFT asset until there is a winner.
  • Buy now price is the fixed price for an NFT so the buyer can purchase the asset immediately. 
  • Reserve price is the seller’s lowest price for their NFT—a fixed parameter in a smart contract so the asset will not sell lower than the desired minimum price.
  • Starting price is the starting price of the auction.
  • Gas fees are the cost of a blockchain transaction that brands pay when minting and selling NFTs. 
  • Minting is the creation of a unique NFT recorded on the blockchain. 
  • Provenance is the record of ownership and transaction history of the NFT that lends authenticity.
  • Royalties are the percentage original creators receive when a buyer resells the NFT.
  • Allowlist is a list of wallet addresses identifying people with access to an NFT collection before it drops. 
  • Drop is a limited release and minting of an NFT collection on the blockchain, often promoted as a big announcement for customers and communities.
  • Airdrop is a free-to-claim NFT given by brands based on a range of criteria like high engagement, retail purchases, and event attendance.

Risks and considerations 

There are many pros to NFT auctions, but there are also risks that every brand should consider.

While these risks exist for everyone, they multiply when brands don’t have the right partner. Mojito prevents and safeguards against many of these issues—check us out to see how you can start leading successful NFT auctions. 

1. Financial risks

The crypto and blockchain arena is still new and cryptocurrencies and the NFT market are volatile. Brands must take responsible steps like choosing a partner like Mojito to navigate these sensitive factors.

Mojito is a Merchant of Record and facilitates compliance, tax, fraud detection risk, and consumer technical and financial troubleshooting.

2. Consideration for artists and creators

As brands create their collections, they should consider the culture that has fostered NFT growth within creative communities. In other words, supporting artists and developing fair parameters for NFT art auctions is key. 

Mojito can help navigate these communities and customer expectations for your brand as Web3 experts.

3. Security

While blockchain adds some of the best security for online transactions, bad actors still exist. Mojito arms brands with the best tools and resources to prevent avoidable risks.

onchain Auction
Mojito partnered with Pace Verso Gallery to launch their first ever onchain auction

The advantage: NFT auctions for luxury brands

There are many creative opportunities for luxury brands. 

Besides enhancing community engagement and investing in Web3’s future, brands can use NFT auctions to improve the customer experience for everyone. 

Picture this: 

You gather your most passionate customers together, the crème de la crème, for the most exciting virtual showroom in history. 

These customers can purchase NFTs, unlocking access to exclusive events. You present them with the best products on the market, some aren’t released yet, and others never will be—they’re only available to your NFT community!

As your most dedicated customers explore your showroom, they can pick which products they want. They could get the physical product and a linked NFT when they purchase it. 

Your customers can then spread the word on social media about how they’ve experienced their favorite brand—intertwining luxury products, digital art, and a vibrant community.

These moments and opportunities spark incredible movement and word-of-mouth opportunities for expansive ROI. 

Once customers embed your brand into their digital lives, it paves the way for other Web3 opportunities, like a metaverse where communities can build relationships virtually and talk about the brands they love.

Additionally, luxury brands can add a new revenue stream within the secondary market—earning royalties when an NFT is resold. 

Luxury brands can position themselves as innovative leaders, driving the future for their market and immersing their customers in an evolving digital landscape. 

How do I start an NFT auction for my brand?

As more consumers expect brands to participate in NFTs, brands should shift towards the future and cement themselves in tomorrow’s economy. 

Starting an NFT collection involves creating artwork or a digital asset, minting it, and distributing it on a marketplace. It also includes strategic community components like nurturing the owner base and offering airdrops, perks, or events

A lot is going on in this whirlwind of a sector and you don’t want to delay until it’s too late.

That’s why we recommend partnering with someone who masterfully executes successful NFT projects and communities for the largest brands in the world. 

This way, you can trust that it’s done well, maintained, and helps grow your brand and strengthen customer loyalty. 

Mojito facilitates NFT auctions so you and your customers can experience the best Web3 auction. 

We merchandise and monetize your digital assets through dynamic drops. You can launch your NFTs with the best marketplace, seamless checkouts, community features, robust API integrations, and more.

Mojito offers the top features for successful NFT drops and communities:

  • Primary marketplace API 
  • Secondary marketplace SDK 
  • Multiple types of auctions
  • Sophisticated bidding features
  • Compliance AML
  • Crypto payments 
  • Fiat payments
  • Web3 e-commerce 
  • Web3 marketplace
  • NFT auctions

Click here to learn how to customize your NFT drops with the best tools available. Onboard, engage, and monetize your community.

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