Gradual Dutch Auctions for Selling Illiquid Tokens and NFTs
Summary
The paper describes Gradual Dutch Auctions (GDAs), a mechanism for selling assets without relying on existing market makers. A GDA represents a sale as a sequence of virtual Dutch auctions whose prices decline over time. The discrete version suits NFTs or other indivisible items: auctions begin together at progressively higher starting prices, and buyers can purchase several of the cheapest auctions in one batch. The continuous version releases fungible tokens at a steady rate through a limiting sequence of auctions, allowing a buyer to acquire a quantity spanning older, cheaper offers.
For exponential price decay, the paper derives aggregate batch-price calculations that can be implemented efficiently, and it includes a model and reference implementation. It motivates the design as a way to spread sales over time and give demand a chance to reveal prices, while balancing price impact against transaction costs. The document does not provide empirical market results; its examples and formulas describe mechanism behavior, and the best price function may vary by application.
Key ideas
- GDAs split asset sales into sequential Dutch auctions and do not require willing liquidity providers.
- Discrete GDAs support batch purchases of indivisible assets such as NFTs.
- Continuous GDAs release fungible tokens at a constant rate through a stream of virtual auctions.
- Exponential price decay allows aggregate purchase prices to be calculated efficiently.
- The design trades off price discovery and market impact against the cost of managing many auctions.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.