Auctions, Blockchain, Creator Economy
Increase NFT Liquidity with Call Auctions
NFTs have caught the attention of creators and their audiences, by enabling new forms of ownership, and novel revenue streams for creators.
NFTs
Non-Fungible Tokens (NFTs) are digital assets identified by a blockchain address. An NFT corresponds to some digital art or gaming asset and is minted with a smart contract.
Ownership of an NFT is determined by the blockchain address of a user and is registered on the blockchain via a smart contract.
By the very definition of an NFT, two NFTs are not interchangeable as each is unique, and has a unique address. However, in practice, NFTs are produced as part of collections. Many NFTs come with a limited number of copies, similar to limited edition prints.
The NFT Liquidity Problem
Like traditional art, for gaining any economic value, one should be able to buy and sell NFTs efficiently.
A major problem with NFTs marketplaces is a lack of liquidity. This forces sellers of NFTs to face difficult decisions, as it is hard to predict how bids will progress into the future.
We propose to consider call auctions for increasing liquidity in NFT marketplaces.
Call Auctions
In a call auction, market participants place orders to buy or sell at a certain bid or offered (ask) prices, which are then batched together and matched at predetermined time intervals. Orders collected during a call auction are all executed at the price that forms the best overall match.
Can a Call Auction Help Liquidity?
On the face of it, since NFTs are unique, one cannot apply the aggregate nature of a call auction. However, as we alluded to above, NFTs are unique up to a certain extent.
So if users bid per collection, per copy of an NFT, or even per rarity, it makes sense to group asks and bids together for a call auction.
Thus, multiple asks and bids for a collection, or multiple collections, taken together, can be considered at a time point. At that point, a matching algorithm can match asks and bids, providing liquidity.
Thus, call auctions can ameliorate the liquidity problem of continuous trading in NFT marketplaces.
Bidding for a Collective
Like traditional art, where collective exhibitions of a group of artists are common, we believe it is natural to consider bidding on multiple collections, each from a different creator.
How Do We Match?
The next step we will take is to develop a matching algorithm for the call auction, including rarities and other traits of an NFT.
Yoram Kornatzky