Auction mechanisms overview
Understanding the different auction mechanisms
It’s almost time! You have now enough information to become an avid crypto art collector and make your first purchase. The last step is to understand the different auction mechanisms so you understand how to prepare your bid.
This is a “Buy Now” option where the artist has indicated a specific price at which they are ready to sell immediately without any auction, which can be advantageous to avoid bidding wars. It’s a mechanism often used by collectors to list their pieces on the secondary market, as well as by artists for multiple editions or single editions that haven’t sold after a while. Collectors can always bid less than the listed price to try and persuade the seller to accept less.
A publicly-visible reserve indicates that when the reserve price is met, a 24 hour auction will begin. Bids done during an auction will be locked in escrow until the end of the 24 hours or until it has been outbid. During the last few minutes (5 mins on Nifty Gateway, 15 mins on most other platforms), any new high bid will reset the timer to that last period, i.e. 15 mins so that a buyer cannot bid at the last second to win the auction. Reserve prices are great to encourage bids, but can create bidding wars and lead the winner to overpay in some cases.
When there are no listed prices or reserves, the seller is open to any offers. He most probably has a price in mind, but wants to use this as an opportunity for price discovery. The best way to discover what the seller has in mind (especially if it’s an artist selling their own piece) is to reach out directly to them and have a chat. Otherwise, it’s wise to look at the artist’s previous sales and floor price to not grossly underestimate or overestimate the asking price. Too often do we see offers at a few hundred dollars on pieces bought for tens of thousands of dollars. Don’t be that bidder.
This mechanism involves pre-paying a given price to enter the drawing and win the chance to buy a piece. It’s popular for drops, as it gives a chance to anybody to win at a usually low price instead of centralizing the artworks in the hands of a few wealthy collectors. It’s pure luck, but it can land some valuable artwork at a discount.
Silent auctions will usually be for low multiple editions (3 to 20 editions) where collectors have to place a bid without knowing how much the editions will go for. The collectors have to guess how much it should be worth, as well as the other bidders’ appetite for the piece. It’s an interesting price discovery mechanism for artists, but it can lead to major divergence between the top bid and the lowest bid, which get the same artwork but for very different prices.
Auctions are pretty straightforward as they work similarly to a reserve price auction, without the need to hit a specific price to start it. These will usually be timed auctions (ranging from a few hours to a few days) where collectors outbid each other until the timer runs out. This is a popular mechanism for major drops on Nifty Gateway and Makersplace, for example.
Enough with the theory, you can now place your bids and collect your first crypto artworks!