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English Auction

// Ascending Price Auction

Auction where the highest bidder wins and pays exactly their bid amount.

In an English auction, all participants submit bids, and the highest bidder wins the auction, paying precisely what they bid. This straightforward mechanism creates a strategic tension where bidders must balance their true valuation against their desire to win, typically leading them to bid below their maximum willingness to pay. The format requires bidders to estimate not only their own valuation but also predict competitors' likely bids, as bidding too high risks overpaying while bidding too low risks losing the auction.

The mechanism dates back to ancient civilizations and remains one of the most common auction formats. eBay dominated early online auction implementations, with auctions making up 13% of their gross merchandise volume as late as 2017, though they have since shifted primarily to fixed-price listings. Onchain English auctions emerged prominently with the rise of NFT marketplaces in 2021. OpenSea's initial implementation of NFT auctions used this format, though they later introduced variations to address front-running and gas price manipulation issues.

Advantages

  • Simplicity: Easy to understand and implement, with straightforward rules and outcomes.
  • Immediate Settlement: No need for complex revelation phases or multi-step processes.
  • Revenue Maximization: Can generate higher revenues than second-price auctions in certain market conditions.

Limitations & Risks

  • Strategic Complexity: Bidders must estimate others' valuations, leading to potentially inefficient outcomes.
  • Winner's Curse: Winners may overpay by overestimating their competitors' valuations.
  • Gas Wars: Can lead to competitive gas price escalation during high-demand periods.

Design Considerations

  • Duration: Define whether auctions use fixed end times (predictable but vulnerable to last-minute sniping) or auto-extending end times (e.g., extending by X minutes after each new bid) to prevent late-stage manipulation and encourage fair bidding.
  • Minimum Bid Increments: Establish percentage-based or fixed-amount bid increments to discourage excessive micro-bidding while preserving price discovery. Consider dynamic increments that scale with bid values in high-value auctions.
  • Front-running Protection: Utilize commit-reveal schemes or batch auctioning to prevent validators from exploiting bid information and inserting their own bids ahead of others.
  • Reserve Price: Set a dynamic minimum price that adjusts based on historical auction performance or minimum valuation benchmarks to balance market interest with seller expectations.

Resources

Examples

OpenSea NFT Auction

Implemented as ascending-price first-price auctions with timed endings. Bids must be 5% higher than the previous offer. A seller can cancel an auction at any time if they want to end it. Sellers can also choose to set a reserve price. This allows the auction to end without a sale if no bidders meet said price. The platform later introduced anti-snipe mechanisms that extend auction duration when last-minute bids are placed, addressing timing manipulation issues.

Foundation NFT Auction

When a seller lists an NFT, they set a reserve price and auction duration (15 minutes to 7 days). The auction only begins when a buyer places a bid meeting the reserve price. Once started, subsequent bids must be higher than the previous bid. To prevent sniping, any bid placed in the final 2 minutes automatically extends the auction by 5 minutes. This extension mechanism continues until no new bids are received within a 5-minute window. The highest bidder at the end of the auction wins and must settle the transaction to receive the NFT.