Saturday, June 11, 2022

Impartial auction. Could we design a more fair way and still create a profit from it?

Is there a way to innovate and improve how we distribute rare goods and services more inclusive and fairly?

Let us start with the definition and the problem. Online auctions became a common way to take part in the exchange of rare goods. Any time I open my Twitter feed, I see: "One hour left! ", "Auction next Monday! ", "On sale now! ", "Thank you ***** for the bid ***" (you can use this template for you too, they are copyright free). We all know Twitter has a horrible prediction alghoritm. It will never show you tweets you would like, but it will show you things you would never search for by yourself. But... This is the topic for another extensive discussion, and I do not think I have enough expertise to cover it...

Why should we care about auctions at all?

Let's talk about what I can think and reflect on - auctions.

  1. Why am I interested in it? Simple, I want to sell something. In my case, I now wish to sell one of my artworks to raise some funds to provide help and food to people affected by the war in Ukraine.
  2. I am not satisfied with the current economic model and how auctions are conducted in the art market. Especially with NFT. The area that supposes to cherish principles of web3 (decentralization, community, culture). Unfortunately, it ended up in the system's exploitation.
  3. I like to experiment with different ways of doing things. At some point in our lives, we should reexamine every aspect of our lives.

Now, as I hope my intentions are more explicit, we could start with the current definition and state.

Auction or the games?

For quick research, go to Wikipedia.

An auction is usually a process of buying and selling goods or services by offering them up for bids, taking bids, and then selling the item to the highest bidder or buying the item from the lowest bidder.

What does this mean?

  1. There should be services or goods you want to sell or buy. These goods should be precious and usually super rare. No one use auction to buy a loaf of bread, but some cheese does.
  2. Contest. There is some game theory behind it. You need to compete with the other bidders with your wallet to get this precious and rare item.

There are many types of auctions. In the most common situation, we would meet English and Dutch auction.

English type is the most common one. The one you would think of when you heard the word "auction." Bidders (people who want to get an item) make their bids, and the highest bid wins. Those who could afford to pay the highest price for the item will own it. [1]

Dutch auctions have a more interesting dynamic. Auction starts at a higher price. The price will drop till someone would not decide that the item is worth it and buy it. [2]

The two are the most straightforward and deterministic. But they also allow you to cheat the system if you have enough resources (which is the simple part as there is usually big money involved)

Candle auction. This one is exciting as it could solve the above problem by introducing uncertainty in the process. There is no definitive end time of the auction. Usually, it is the period of the time when the candle flame gets expires. You cannot predict the exact end time if you don't control the candle. So there is much more initiative to put your bid earlier and less ability to cheat the system. My friend created a very good implementation of this auction for the Ethereum network. [3]

There are more unique and exciting types. For example, the first-price sealed-bid auction is a sealed-bid first-price auction or blind auction. Bidders make their bids without knowing other bidders' proposals and with the ability to adjust them later. I would say this one can reduce the problem of price rash by other parties and could show the more appropriate value of the item. Vickrey auction, also known as a sealed-bid second-price auction variation, where the winner pays the second-highest bid. Make him a bit happier as he can receive the item for a lower price than he is willing to pay) [4]

And some types are more appropriate for the charity or more inclusive participation. An all-pay auction where everyone pays his bid whether he wins or not. Or a senior auction where the top two offers must pay their proposal while only the top bidder wins and the second-highest are loose. This gives the initiative to go for a higher price as you need to raise your to cover the largest bid. There is another version like a lottery, where every bidder must pay the same price, and the winners get the prize.

As we see, there are quite variations of the auctions, and we even do not mention the many items or winners, tenders, or reverse ones. As already was mentioned, the English and Dutch auctions most common ones, and usually, these two you would see at most online marketplaces.

What's wrong with the auctions?

  • This type of auction still has the problem of determinism. As the end time is defined and alghoritm accessible, there are ways to cheat the system.
  • They support the polar world system, where the person who could pay more always has the advantage. So, it excludes most people who couldn't afford the hyped price.

Actually, some of the mentioned above types could solve that problem. There is no big problem with implementing some of them, but it will require creating your own infrastructure around them as you couldn't add a custom auction to the gatekeepers as opensea and other marketplaces. As this goes against the profit-driven model, they use. So, we need to work with the one we have for now. We need to find a way to add the new mechanics to the process on top of them. [5]

How could we innovate with limited resources?

To solve the mentioned problems, we should:

  • Add non-determinism and uncertainty into the system.
  • Create more inclusive mechanics that will encourage people to participate in auctions even if they cannot afford the highest price and still can receive the reward.

I want to reward people for the intention to help. I decided to do this experiment where I would reward 4 extra artworks to the people that will make any bid in the current auction. The random draw will assign these 4 works. The winner still pays the price that will go to the onecan fund. The winner has a chance to receive 2 works for his bid (one piece that is auctioned and one the randomly distributed). Meanwhile, each participant also will have the opportunity to receive one of the randomly distributed works without paying any price.

In this case, we still have the initiative for people to pay for the artwork. Even bigger initiative as we improve the chance of reward and reduce the price that needs to be paid (receive work for free).

What could you do?

They're still one problem that is not that easy to solve with these extra mechanics. As a person that is not active online, I do not have an extensive base of followers to share this project with. I also don't want to be annoying and shout and flood everywhere with this content. But I hope we will be able to attract enough people to provide enough food for the victims of this war. So, I would like to reward the people that could share this article with the link to the auction or a description of the work with their friends and followers and send a short message to me with the link or screenshot, or mention me @vasily_onl in their post. After the auction, I will randomly pick up one person and send one of the new artworks to him.

And, of course, you can always place a bid to

  • be part of this experiment
  • make something good and save a couple of lives
  • win one of the works.


  • try this model on your own (please let me know of result)
  • you also can always contact me if you want to implement something similar but have no idea how to make it.


[0] Disclaimer. I'm not a full-time blockchain developer or specialist in auction theory. My assumption could be biased. But my extensive expertise in art, technology, and education and fresh look from the outside could allow me to see new opportunities for innovation.

[1] English auction is the most straightforward and computationally efficient to implement. You only need to have a list of bidders; the last one will be with the highest bid. Require security checks when the offer is happening and when the auction finishes.

[2] Dutch auctions are even more explicit in the implementation of bidders as there only one bid happens. The first who makes a bid - is the winner (if there is only one item on sale) as it will be the highest price.

[3] Candle auction will require much more work and computations. There is no direct way to get deterministic random numbers on-chain (only with Oracles). You need to keep the list of all bidders. Bid time requires checking with the snuff time. Things are getting more complicated if you are doing the multi-unit auction. The sorting of bids with the ability to place the bid less the highest one (have a sense for multi-unit auction) became computationally expensive and inefficient. You can find our efficient optimistic implementation here.

[4] These two, I think, should be pretty simple to implement. Just maybe there are few needs in the current market as it reduces the hype around the works and pricing. But could be some curious implementations for more marginal cases.

[5] I will use OpenSea as a platform as its major player and have enough audience and is well-known. Extra mechanics, I would do manually (it doesn't require much time or knowledge).

  • get a list of all bidders from the auction
  • run random number generator to pick up 4 numbers from the list
  • transfer gratitude works to the winners
  • repeat same with reposts and Twitter shares

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