As the first fully decentralized auction protocol on Solana, our goal is to provide access to unlimited auctions for any asset class. To that end we are proud to debut the initial auctions that have been selected for deployment on Burnt Finance. In this piece, we will define the first two types of auctions — English and Dutch — and how each one serves to meet the needs of a rapidly growing market.
The Current State of Auctions
The current auction ecosystem consists of either entirely centralized or semi-centralized platforms, each with their own set of limitations as addressed below.
Fully Centralized Auction Houses
Traditional auction houses such as Sotheby’s and Christie’s present immense physical, economic, and social barriers to entry. First, the art itself must pass through a central clearing house and be approved by a centralized authority before an auction can be started. These opportunities are typically reserved for extraordinarily famous artists on the creator side, and ultra-high-net-worth individuals on the bidder side.
Even centralized auction houses that allow for minting and trading of assets such as NFTs have their drawbacks. In order to be listed, an artist must be accepted by the centralized governing entity. In addition, users are unable to retain their anonymity and must divulge personal information which in a way is antithetical to the ethos of crypto itself.
Ethereum-based Auction Platforms
There is another cohort of auction houses that claim to be decentralized but are largely centralized in nature. Most of these platforms operate on the Ethereum blockchain which unfortunately means that they suffer from exorbitantly high gas fees and slow transaction times.
Most creators and buyers alike are kept out since the high fees often negate any potential avenue for users to enter. In many ways, the current auction protocols today exacerbate the issues prevalent in the world of centralized auction houses rather than helping to solve them.
The Bottom Line
We at Burnt Finance believe that centralized structures are directly antithetical to the ethos of crypto and decentralized finance as a whole. In addition, the centralized nature of most platforms today prevents everyday people from being able to participate in new forms of finance, while also forcing participants to divulge personal information. Lastly, almost all other platforms today are built on Ethereum which suffer from extremely high gas fees and slow transaction times.
Burnt Finance: The First Fully Decentralized Auction Protocol
Burnt Finance provides an auction platform that is available to everyone in an entirely decentralized setting. We are uniquely poised to match our centralized counterparts in terms of both speed and security, minus the high gas fees and risks thanks to our state-of-the-art technical infrastructure on Solana.
As part of our mission to diversify the auctions ecosystem, Burnt Finance will support a plethora of auction types in a fully decentralized setting. Two of the most prominent types include English and Dutch auctions, which are explained in greater detail below.
If you are familiar with the world of art, or have ever purchased an item on eBay, this type of auction might ring a bell. The auctioneer commences the auction by announcing a recommended opening bid, a starting price, or a reserve for the item. Afterwards, the auctioneer accepts bids from those interested in buying the item which grows progressively higher. When the predetermined amount of time comes to an end, the person with the highest bid will be able to purchase the item.
To illustrate this type of auction, let’s assume a creator is carrying out an English auction for a 1 of 1 NFT on Burnt Finance. The process would generally proceed as follows:
- The auction starts with the seller establishing a reserve and starting price. The reserve price is disclosed upon auction creation, but the seller can choose to accept a certain bid by submitting an on-chain transaction before the reserve price is met.
- Potential buyers place a bid on the item and the contract preserves that amount until another bidder bids on it. A buyer that is outbid will get his tokens back.
- Any new bid that is placed during the last 10 minutes of the auction will add an additional 10 minutes to the auction time.
- When the auction concludes, the item will be handed over to the winner if the reserve price is hit. The seller is automatically provided with the purchase amount minus any marketplace or royalty fee. However, should the reserve fail to be hit by the end of the auction period and the seller chose not to accept any bids, the respective parties will receive back their bid amount and item.
By facilitating English auctions, Burnt Finance gives users access to a well-known and ubiquitous auction framework, allowing buyers to compete with one another to determine prices. This type of auction makes price-setting an organic and community-driven process, rather than just a discussion between one buyer and one seller. This in turn enables one-of-a-kind digital assets to see their full potential by selling at the highest price offered.
While the crypto industry is certainly more familiar with Initial Exchange Offerings (IEOs) or Initial DEX Offerings (IDO) it is no stranger to Dutch auctions.
Dutch auctions operate by taking into account all bids in order to arrive at the final price of a designated asset. This type of auction is fitting for situations in which a large quantity of an asset is for sale rather than just a single asset.
In a Dutch auction, the price ceiling of an asset is set by the seller. The price continues to drop over given epochs (predetermined periods of time). However, potential purchasers are able to place bids along the way and purchase the asset at those prices. For instance, a creator may begin an NFT Dutch auction at $100 and set the price to drop by $5 every hour. This means that the first purchaser may have bought the NFT at $100 while another purchaser may be able to buy the same NFT at $90 two hours later.
The Dutch auction ends when there are no remaining NFTs left to be sold or when the designated time for the auction ends.
Dutch auctions are vital to the decentralized auction protocol because they offer a more fair and democratic method of determining asset prices. The descending-bid mechanism allows smaller name investors to bid and take part in price-setting for high-value assets, contrasting with traditional auctions in which bidders belong to exclusive, institutionalized groups (i.e. investment banks) that determine prices.
Burnt Finance is a platform that is dedicated to providing the best services for its users, and that includes offering a diverse array of auctions. The piece here covers English and Dutch auctions on Burnt Finance. In the coming days, we will also look to delve into other auctions that can be launched on Burnt Finance.
About Burnt Finance
Burnt Finance is the first fully decentralized auction protocol on Solana. Burnt allows users to take auctions into their own hands, enabling the minting and auction of any asset in an entirely permissionless ecosystem. The platform can support auctions for synthetics, NFTs, digital assets, and much more. Given its unique Solana-based architecture, Burnt is able to achieve unparalleled transaction speeds with near zero fees. Burnt is backed by industry leaders such as Alameda, Multicoin, Vessel Capital, Defiance, and Injective Protocol.