Are Dutch Auctions Really Bull$&!#?
Yuga Labs released details of its upcoming Otherdeeds sale, part of its Otherside Metaverse, in a Mirror article Thursday. The biggest change was that Yuga Labs was forgoing the original Dutch auction plan it tweeted about on April 25 and making Otherdeeds a flat price.
It's reasoning?
“NFT ‘Dutch auctions’ are actually bullshit,” said the first line of the article written on the web3 publishing platform Mirror.
Yuga Labs added that Dutch auctions “do not successfully mediate demand” or “negate gas wars in highly-anticipated mints.”
“This is especially problematic when you consider that the Otherdeed mint may be one of the largest scale, high-demand NFT mints ever,” the project said. “All the usual problems with NFT gas wars would be exacerbated by the sheer number of NFTs to be minted, which could result in a gas war of historic proportions.”
Dutch auctions were even good enough for Yuga Labs back in late August of last year when it stealth-dropped its Mutant Ape Yacht Club collection. The company chose a Dutch auction with a starting price of 3 ETH. The 10,000 editions in the sale sold out in less than 30 minutes. So what's changed for the company since it made such a quick about-face on the Dutch auction. And are they really bullsh*t?
Dutch Auctions: The Preferred Choice for NFTs
For early NFTs, Dutch auctions and bonding curves (where the earlier minters pay a smaller mint price than later minters) were reasonably popular. In 2017, Cryptokitties used a Dutch auction to do its initial Generation 0 drop to a small group of buyers. Bonding curves were left behind during the NFT boom but Dutch auctions have endured.
PROOF Collective, the project led by Digg co-founder Kevin Rose which now has a 120 ETH floor, had a 5 ETH Dutch auction starting price, but it didn’t sell out until it hit 1 ETH.
Azuki, one of the most popular collections of 2022, held a Dutch auction with a 1 ETH starting price for its public sale, which was a gas war, though prices were negated by the project’s use of the more efficient ERC-721a smart contract.
Dutch auctions are also the preferred mode of minting for Art Blocks, especially its Curated collections. Around July 2021, Art Blocks switched back to the Dutch auction after several gas wars.
"As you can imagine we are tired of seeing 2-5x of the price set by the artist going to miners," said Art Blocks founder and CEO Erick Cauldron, known as snowfro, in a July Discord announcement.
For a bulk of projects, Dutch auctions have been the best indicator of fair market price, rewarding creators and artists alike.
Enter Pixelmon
In early February, more than 1,000 wallets minted a promising game called Pixelmon at the onset of a Dutch auction, paying 3 ETH for each NFT. The project netted more than $70 million. A few weeks later came the art, which was roundly panned for its appearance. The project’s leader, @Syberer, also admitted the NFT art was from the Unity Asset Store, where game creators can purchase similar assets for much cheaper than the 3 ETH minting price.
The project was seen as an example of the pitfalls of Dutch auctions.
“Firstly, the Dutch Auction is officially DEAD,” tweeted EllioTrades, the founder of Impostors, which chose a fixed price for its anticipated drop. “The community thinks DAs are extremely SUS! And not in that fun way.”
Carlini, the founder of Purrnelope’s Country Club and former co-founder of NFT Boxes, tweeted that he would “continue to fud” any drop that wasn’t “community first.”
“This (Dutch auction) style hurts the biggest fans of a project. The first buyers are the biggest fans and end up with a higher bill. Terrible,” he said.
Clearing House
“There is no one size fits all,” said Carlini in a direct message on Friday. "Yuga shouldn't do a Dutch auction because they have too much hype.”
If he were Yuga Labs, Carlini said he would have used a blind Dutch clearing auction, where bidders could submit their bids in $APE and the lowest bid would be the price the top 55,000 bidders pay.
AkuDreams recently used a Dutch clearing auction for its anticipated Akutars drop, but a hacker exploited the contract which caused more than $34 million to be locked, forcing the project to reach into its treasury to pay refunds.
Heavily hyped mints like MekaVerse and Moonbirds have opted for raffles instead of trying to figure out the right way to structure a Dutch auction.
Gas War Still Coming?
And as much as Yuga Labs has tried to avoid a gas war, using KYC and a fixed price, along with planned minting waves, it may still see one. As of 4:15 p.m. ET on Saturday, there are more than 77,000 wallets with at least 305 $APE in them (though it isn’t known how many of those have completed the KYC process). That number could grow significantly by 9 p.m. ET as a secondary market has sprouted up for KYC accounts.
