“The highest bidder wins” is a phrase that defines traditional auctions where only one person wins. While it was simple and decisive, there lay the logic of winner-takes-all—a system that extracts value but creates none. This model, which has been inherited by traditional Web2 platforms like OpenSea, eBay, and Christie’s, is outdated.
As Web3 continues to gain traction on a global scale, the market must move beyond the paradigm. Auctions should become composable, programmable primitives that define how value is discovered and distributed on-chain. They should reward participants and create a transparent consensus on what an item is genuinely valued.
Legacy Auctions; The Existing Problems
Legacy auctions were built mainly for the sellers. From the design choice to the styles and how it is implemented, traditional auctions pay attention to the seller only. By adopting the “if you didn’t win, you lost” approach, they do not support long-term ecosystem growth or even incentives aligned for sustainability. Instead of building a network where participants can receive incentives for their roles in the proliferation and seamless purchase of items, traditional auctions are focused on short-term revenue. This results in thin participation. Users would only enter an auction if there’s a chance that they will win, leading to limited activity. Also, once that auction ends, the momentum dies.
Price Discovery as a Solution
Price discovery has become an essential market process, yet it is overlooked. But what is it anyway?
Price discovery is the process where the market determines the price of an asset based on the interactions of buyers and sellers. It is a mechanism by which supply and demand forces interact to establish a market-clearing price. This price mostly reflects the collective understanding of the asset’s value at a given time.
It isn’t an abstract economic concept; it is the heartbeat of a genuinely functional market.
Let’s take a look at the common auction formats and their flaws:
- First-price sealed-bid auctions incentivize strategic shading—bidders holding back, never revealing the true value of an asset.
- Dutch auctions mostly lead to participants waiting for too long, resulting in insufficient allocations where the true market value is missed.
- English auctions nudge the prices up, but strategic bluffing and signaling can distort the equilibrium.
Without adequate incentives, participation dwindles significantly, spreads widen, and the market becomes inefficient. We’re then left with a blurred image, not a clear picture of the asset’s true value. GBM Auctions fixes this with their novel approach that incentivizes each participant, therefore transforming auctions into high-engagement, high-efficiency tools for uncovering genuine market value.
“GBM auctions have transformed the way we sell to our community. True price discovery for our assets and an incentivized selling process has made our drops wildly successful across all metrics,” says Jesse Johnson, Founder and COO of Aavegotchi.
True Price Discovery With An Incentive Aligned Alternative
What if auctions switched from merely selling things to genuinely defining their real value? This would require a radical shift towards an auction model that is composable, programmable, and incentive-aligned. Imagine a world where auctions are like a shared journey, and each participant contributes to surfacing real demands. And for their contribution to the collective assessment of the item, they are compensated. This becomes a collaborative effort where all hands are on deck to build a more accurate understanding of market value.
Think about what Automated Market Makers (AMM) did for liquidity in DeFi. They seamlessly transformed an outdated process into a more accessible and incentivized one. This is what price discovery with incentive-aligned alternatives can do for the budding auction market. And it can;
- Reveal market interest in real-time, painting a much clearer picture of demand than ever before.
- Enables creators to launch without speculation or hope
- Transform sales into social, participatory events
The future requires we leave behind this inefficient, extractive, and winner-take-all model and adopt mechanisms that reward engagement and encourage truthfulness.
