How OpenSea Auctions Work
Like with many other products, the price of NFTs is dictated by demand. However, this can be hard to measure because crypto assets are such a new category of products. It had been left up to the sellers to set the price of their items in the beginning.
OpenSea, one of the largest NFT marketplaces in the world, has changed things a little. They have made it possible for buyers to determine the price of products through auctions. Here’s what you need to know about how OpenSea auctions work.
How OpenSea Auctions Work
There are two types of auctions on OpenSea. There’s the English auction, where the item is advertised for sale, and the highest bidder wins. The other option available is the Dutch auction, where the price keeps falling until someone finally buys the product.
Here’s a closer look at these two options.
The English Auction
The English auction is structured like the typical eBay-style auction. The buyer puts up their item for sale and sets the minimum selling price. The product is available for a set period, and when that time has elapsed, the NFT goes to the highest bidder.
When the auction comes to a close, OpenSea will automatically complete the transaction that transfers the NFT to the highest bidder. The platform will also take care of the gas fee.
However, this will only happen if the item sells for more than 1ETH. If the offer price is lower than that, the seller decides if they will accept the price. They are under no obligation to sell the asset.
The seller can choose to accept an offer at any time during the auction period. For this to happen, the buyer has to have WETH. WETH or Wrapped Ethereum is a currency that allows buyers to make a pre-authorized bid that OpenSea can fulfill without any further action from them. If a seller accepts an offer from a buyer with WETH, the transaction automatically goes through without additional authorization needed from the buyer.
When selling NFTs on OpenSea using the English method, the seller is free to cancel the auction at any time. They will, however, have to pay the gas fee.
One thing to remember is that a bid extends an auction by 10 minutes.
If you decide to go with the English auction, OpenSea allows you to set a reserve price. If this amount isn’t reached when the auction ends, the process will close without a sale. You are free to select any reserve price you please, but it can’t be below 1ETH. OpenSea typically covers the gas fee, and a lower reserve price won’t be profitable for them.
As the seller, you can accept a bid at any point during the auction period, even if it’s below the reserve price. However, you’ll have to pay the gas fee. The reserve price can’t be changed once the auction has begun.
Advantages of the English Auction
There are several advantages to selling your NFTs using the English auction structure. Let’s take a look at them here.
Price Goes Up
It might be hard for you to gauge how to price your item as a seller. There’s the concern that you might set a too high price, thereby putting off potential customers. You also don’t want to price it too low, potentially losing money on a sale.
With the English auction, you don’t have to worry about setting a selling price. You can put the minimum amount you are willing to get for your NFT and let the market do the rest. The buyers will keep pushing up the price as they bid.
Buyers love auctions because it feels like a game. Strategizing to outbid everyone else while still paying a reasonable price for an item can be exhilarating for some people.
They also don’t have to know how much that particular NFT costs. All they know is that they have to pay a little more than the next guy. This bargaining process makes buyers feel like they are getting a good deal. They get to decide how much the NFT costs.
The English option offers an opportunity for buyers and sellers to come together to determine the value of the product. It’s a bargaining dance that leaves participants feeling like they got what they wanted.
The Dutch Auction
The Dutch auction is similar to the English version, except the price falls over time. Buyers can bid for an NFT at any point during the auction period, but the price diminishes as time goes by.
It can be risky to sell your NFT this way because chances are you’ll get less for it than the amount you set at the beginning of the auction. It might be prudent to start with a higher price for your product than you hope to get.
Shaping Market Forces
NFTs and their marketplaces are relatively new. With platforms like OpenSea creating auctions, buyers and sellers participate in a process that ultimately decides the industry’s future. Auctions essentially set the market value of products, ascribing value to the crypto assets for sale. This article details the types of auctions available on OpenSea and how to participate in them.
Have you set up an auction or bid for an item on OpenSea? What was the experience like for you? Let us know in the comments section below.