A token for slow auctions
With the launch of the 52 Collection for renowned land artist Strijdom van der Merwe, Fanfire will also introduce a new “slow auction” mechanism to demonstrate how Web3 concepts can be used to create entirely new marketplace dynamics.
Conventional auctions can be fast-paced affairs. The bidding audience is exposed to many lots over the brief span of the auction, and the auction allows the buyer and seller to find a mutually acceptable price point within a relatively short period of time. Of course, with the constraints of time and space, an auction like this necessarily limits the size of the bidding market that can participate — something that disadvantages both bidders (not all willing buyers may be able to attend the auction) and sellers (a small bidding audience may not find the ideal price for an item).
Online auctions solve this to some extent. Bidders can participate from anywhere in the world, and there is a much longer period over which bidders can discover and join the auction, allowing a better price point to be discovered. However, it has some disadvantages:
- It is harder to verify a bidder’s identity online, and to verify that they are able to honour a winning bid.
- Bidding is an information game for all participants: the bidders also want to discover what their competitors are willing to pay. Bidders prefer to reveal information about their own bids as late in the game as possible. This leads to sudden frenetic activity close to the closing time for a lot, and bidders may attempt to “snipe” at the very last moment.
A different, slower game
Web3 technologies such as non-fungible tokens (NFTs) allow us to think differently about auction mechanisms. What if a bid has a current owner? Can a bid then be an NFT itself, to be bought and sold through the run of the auction?
For the 52 Collection, we chose to put the weekly digital originals up for sale at a quite low price, even though each NFT assigns full and exclusive commercial rights to the artwork. If the artworks are worth more than the original listing, they will find their price in the secondary market, and the artist will share in any future sales. With NFTs, there is little pressure on the artist to find the “right” first sale price.
Additionally, we also wanted to create a full collection of separate digital originals, with completely different views of each of the 52 land art installations. The idea was to make this full 52 Collection available for auction, since it has considerably higher value than the individual works sold throughout the year. To do this, we created a new type of auction token that encourages bidders to find the ideal price point very early in the bidding process — even if it spans an entire year!
The holding game
For this full collection, we implemented an auction contract that works as follows:
- Initially, a bid token is put up for sale at an opening price, e.g. R10,000 ($700).
- The buyer pays in cryptocurrency (USDC) and is the current highest bidder. The bid amount is held in reserve in the marketplace smart contract towards the final purchase of the asset.
- However, the bid token is always on sale (inspired by this project by #cryptodavinci Simon de la Rouviere). Anyone can purchase it at a price of their choosing to become the next highest bidder — as long as the price they pay is a minimum increment more than what the previous bidder paid.
- When the bid token is sold, the previous bidder is refunded their bid, and the balance is added to the marketplace reserve. This means that the current bid price for the asset is always reserved upfront.
- Blockchain bidding closes at a fixed date (e.g. 1 week after the last work was created). After that the bid token can no longer be sold or transferred.
At the closing stage, we have a preliminary final bid, and the funds are already locked into the marketplace. However, the last phase of bidding encourages bidders to place as accurate a bid as soon as possible.
In a final live bidding round (spanning perhaps an hour) the bidders who owned the bidding token for the longest period of time throughout the year may place one final bid in reverse holding order — the bidder who held the token for the shortest period may place a final bid first (or decline), and the bidder who held it for the longest period may place the very final bid (or decline).
Note that a bidder never profits or loses out from the bidding process. If they are outbid, they are refunded. The only overhead may be blockchain or platform fees incurred when placing bids.
Best of both worlds
The intriguing thing about this mechanism is that it encourages bidders to post their acceptable buy price as early as possible, since this allows them to hold the token for as long as possible — and to have the best chance at deciding the final bid. Consequently, information is released to the rest of the market as early as possible, which helps the market to discover the ideal price point.
At the same time, the seller sees funds locked in from the first bid, and there is no need to check buyers’ credit ratings, keep credit cards on record, or go through an extensive vetting process. NFT trades are quick and secure, and the marketplace smart contract defines the bidding rules.
The Strijdom 52 slow auction
Individual 52 Collection digital originals will be put on sale at fixed price from 31 March 2022. We aim to have the auction token for the separate set of 52 originals on sale towards the end of April, at a modest opening price.
All bidders who held the bid token for even the briefest period will be invited to the gala event for the 52 Collection mid-2023. The bidders who held the bid token for the longest cumulative period will be allowed a final bid at the gala event, in the order of their holding period. The bidder who held the token for the longest total period over the year (even if it were non-consecutive periods) has the option to place the final bid.
There is a strong incentive for early bidders to place a high enough price so that they are not quickly outbid, but to rather hold the bid token for as long as possible. The process also discourages late-stage price sniping, since the longest bidders each get one chance to place a final bid.
The 52 Collection auction token (like the rest of the project) is intended more as a concept expo than a purely commercial endeavour. It serves to demonstrate how Web3 can create new markets for well-established artforms. We are excited to see how ideas like this evolve in the future.