NFT Auctions: What are they? How do they work?

NFT auctions are the most prevalent way for users to acquire non-fungible tokens. Rather than simply selecting and purchasing a non-fungible token, these auction websites permit sellers and purchasers to negotiate a price for the non-fungible token being auctioned. Traditional art galleries such as Christie’s and Sotheby’s have included non-fungible tokens in their inventory and regularly host renowned non-fungible token auctions.

What exactly is an NFT Auction?

An NFT auction is a type of sale in which the seller specifies the starting price (floor price) and the length of the sale. These auctions happen on a digital platform where the non-fungible token is open to the general public for bidding. Simply put, the process works similarly to traditional auctions. Usually, the NFT marketplaces act as auction houses, and interested buyers place their bids digitally rather than physically.

Some non-fungible token collections offer pre-sale and public sales, but other crypto creators or projects host digital collectible auctions. Typically, auctioned non-fungible tokens are one-of-a-kind works by the creators. A part of the revenues of such transactions goes toward funding the initiative and rewarding its participants.

In contrast to NFT auctions, where the asset’s price might increase based on the volume of bids, fixed-price NFTs do not increase in price. Since it is not open to bids, the owner determines a fixed price for the token. Fixed pricing non-fungible tokens are frequently dependent on the collection’s current market value, and sellers can choose to sell at or above the floor price depending on the rarity of the digital asset. Know more about NFTs pricing.

The bidding process begins with the seller specifying the auction parameters, i.e., the reserve price. When the non-fungible token is listed under sale/auction, anyone interested can put in a bid equal to or greater than the price fixed on it (which is the minimum price). By the end of the sale period, the non-fungible token is delivered to the highest bidder.

NFT auctions are of two types:

• Limited auction: Limited auctions are time bound. Such NFT auctions have an end date and time. All bids are welcomed within this window. Once the clock hits closing time, no more bids will be accepted.

• Unlimited auction: Unlimited auctions are open-ended. They remain open till the seller decides to close the auction. Once the owner feels they have received an appropriate bid for their NFT, they may close the auction.

How do NFT auctions work?

Determining how a non-fungible token auction works depends on the type of auction. Apart from the auction types mentioned earlier, one can also find – Dutch auctions and participant admission auctions.

Whatever type of auction, certain standard procedures will be followed throughout the auction. The general steps are as follows;

When you are participating in or hosting an auction, you must understand a few terms, such as reserve price.

What is a reserve price?

A reserve price is the smallest ETH for a non-fungible token. Collectors or buyers usually get to see this price. This price is also considered the minimum price. Thus, buyers cannot place a bid that is below this price.

In addition to the reserve price, an extra service fee (about 5% – 15%) will also be added to the token’s final cost. A timed countdown of 24 hours begins once the non-fungible token put up for suction reaches its reserve price. The auction ends automatically by the end of such countdown.

Any bid that is placed during the final 15 minutes of the timed countdown will reset the timer to 15 minutes. This process goes on until no more bids are placed on the NFT.

The collectors can bid on only commodities with reserve prices equal to or higher. When a non-fungible token receives its foremost bid, a timed auction (usually 24 hours) begins automatically. The bids that come after the first must be 10% higher than the current bid (0.1 ETH higher than whichever is less). You can also use social media channels to increase bids and draw attention to your auction.

If an NFT does not receive any bids beyond its reserve price, it is sold to the first bidder who bids at its reserve price.

If there are no bids in the final 15 minutes of an auction, time extensions are usually indefinite. Typically, this extra time gives the buyer and the artwork one last chance to reach their highest value.

List of Top 10 NFT Auction Sites

UPYO

UPYO is the largest non-fungible token marketplace in the Middle East. The platform hosts thousands of non-fungible tokens from talented artists while allowing regular people to create and auction their own NFTs. UPYO supports four blockchains- Ethereum, Flow, Tezos, and Polygon. Moreover, the platform is compatible with MetaMask Wallet.

The site offers a lazy minting option, making it free for creators to mint their digital assets. Users can use one of three options to sell their digital products. They can choose between fixed-price sales, limited auctions, or unlimited auctions.

OpenSea

This is one of the most popular and largest markets for non-fungible tokens. It has various non-fungible tokens under different categories such as music, domain names resistant to censorship, sports, art, digital collectibles, etc., The platform has ERC1155 and ERC721 holdings along with other exclusive holdings (assets) like ENS names, Decentraland, Axis, etc.,

Apart from these, it is home to extensive non-fungible token ventures from art projects to ENS and trading cards to virtual games. The site offers minting tools that their users can use to create non-fungible tokens. Moreover, users who don’t know to code can also create an NFT collection on this platform.

If you are developing a smart contract for a collectible or other non-fungible tokens, you can easily gain access to this site. Users can fix a price, set a declining price, or establish an auction listing when selling their non-fungible token on this platform.

Rarible

Community members own this platform, and the owners possess the ERC-20 RARI token. The site offers RARI tokens as rewards to active users to use the platform to purchase or trade non-fungible tokens. As per a recent survey, 75,000 RARI are rewarded to the users per week.

The site underscores art goods in particular.

The site enables creators to “mine” new non-fungible tokens to sell their works. The artists can even display a preview of their creation to everyone who visits the site while restricting the complete venture to the buyer.

SuperRare

This large marketplace helps people buy and sell limited-edition virtual artworks. Every art piece is authentically designed by one of the site’s artists and eventually gets tokenized. They perceive themselves as an amalgamation of Christie’s and Instagram and offer a fresh way to engage with art in the digital realm.

Furthermore, every art collectible on this site is encrypted and tracked on the blockchain. The site has established a social media network on top of it. The transactions on this platform are done in ETH. The site currently works with limited hand-picked artists, but if you are interested, you can submit your artist profile to earn a chance for their next launch.

Foundation

This specialized platform calls itself the “new creative economy,” where its main focus is on digital/virtual artwork. The site brings crypto natives, virtual creators, and collectors to advance culture. They called creators to experiment with crypto and its notion of value on their first blog.

The original designer gets 10% of the sale price whenever their non-fungible tokens get traded on this site. In other words, the creators receive a 10% commission whenever the buyer resells the creator’s work for a higher price.

Enjin Marketplace

This site serves as the official platform for Enjin-powered non-fungible tokens. To date, it has allowed 832.7K transactions. Digital assets that are worth 2.1 billion are being traded, as per a recent survey.

On their Projects page, one can find numerous Enjin-powered blockchain ventures. The ventures span various categories like game collectibles, gamified reward projects, community-based collectibles, and also non-fungible tokens by Binance.

Nifty Gateway

This is one more popular marketplace where digital artists and celebrities such as Beeple, Grimes, and much more have sold/listed their works. Gemini, a regulated and secure crypto exchange, manages the site. The exchange is viewed as a high-end marketplace due to its partnership with famous brands and creators.

Creators or artists receive a percentage of this site’s secondary or resale price. Thus, you will get a commission when a buyer purchases your non-fungible token. Furthermore, the site also provides “open editions” that allow creators to print an infinite number of copies of their works for a restricted time.

Additionally, the site simplifies selling non-fungible tokens by handling all technical aspects of its creation and sale and also providing technical assistance.

Unlike most other marketplaces, this site hosts the non-fungible tokens it acquires. The non-fungible tokens you sell or purchase is not held in a wallet. Instead, they are saved in the Nifty account by both the site and Gemini.

Mintable

This is an Ethereum blockchain-based marketplace that Mark Cuban, an entrepreneur, supports. Users or designers can use this platform to mint non-fungible tokens for free of cost. Even if they don’t know how to code, creators can use smart contracts on this site to build their virtual assets.

Furthermore, the platform also facilitates the designers to convert digital files such as PDFs and MP4s into non-fungible tokens that can be sold.

The creators can mint and list their creations using the site’s gasless feature (if you mint using Immutable X). You may visit the Mintable academic if you need to learn how to sell non-fungible tokens.

Remember that to use the site fully; one must buy Ethereum from exchanges such as Gemini and Binance. You must then connect your wallet (the site is compatible with MetaMask), where you can save your virtual assets and cryptocurrency, to the site to facilitate your transactions.

Axie Marketplace

This is basically an online store for the video game called Axie Infinity. The game has native fantastical creatures called Axies. The users can purchase these Axies, train, and set them against other Axies to gain rewards. The site allows gamers to buy new Axies as non-fungible tokens in addition to plots and other items.

NBA Topshot

NBA Top Shot is the National Basketball Association and Women’s National Basketball Association’s entry into the NFT world. Users can buy collectible moments (video clips and play highlights) and art from the world’s top basketball leagues on its websites.

Using Dapper Labs’ Flow blockchain, the NBA created Top Shot as a closed marketplace (you can only buy and sell on Top Shot). It is simple to sign up for and purchase collectibles for a few dollars directly from the Top Shot marketplace website.

Highest-selling NFT auctions to date

Beeple’s Everydays: The First 5000 Days

In 2021, digital artist Mike Winkelmann (aka Beeple) auctioned Everydays: The First 5000 Days for a whopping USD 69.3 million, making it one of the most expensive non-fungible tokens to date.

The collage is made up of five thousand of Beeple’s previous creations. Vignesh Sundaresan purchased this artwork at Christie’s in an online auction. In an interview with CNBC, he stated that he was willing to bid even higher as the non-fungible tokens were still in their early stages.

CryptoPunk #7523 by Larva Labs

This token, created by John Watkinson and Matt Hall of Larva Labs, is one of the best-selling non-fungible tokens. While there are over ten thousand collectible characters like this one, this virtual character is unique. It is one of only nine Alien punks and the only one wearing a medical mask.

It was sold for USD 11,754,000 at Sotheby’s “Natively Digital” auction to Shalom Meckenzie, an Israeli entrepreneur.

Beeple’s Crossroad

Crossroad is another non-fungible token by Beeple that was sold for a large sum of money. Although this work is not expensive as Everydays, it was sold for USD 6.66 billion to an unnamed purchaser on Nifty Gateway.

The artwork shows former US President Donald Trump flat on his stomach with offensive words written all over his body following his defeat in the 2020 US presidential election.

Conclusion

A significant portion of all the non-fungible tokens in existence are on the Ethereum blockchain network. However, additional expenses are associated with mining the token on the Ethereum blockchain- thanks to increasing gas fees. Owing to higher gas fees and platform charges, NFT auctions are more expensive now. Suppose the auction is held on a secondary marketplace for a piece of work from popular collections (BAYC, CryptoPunks, Doodles, etc.). In that case, you can expect the reserve price to be significantly high.

Usually, you only hear of NFT sales concerning large sums of money. However, NFT-related auctions are happening all the time across all the non-fungible token marketplaces. If you have a rare digital work of art, consider auctioning it as an NFT on a verified platform. You can make a decent profit from your NFT and supplement your income.

FAQs about NFT Auction

What happens when you win an NFT bid?

When you win an NFT bid, the non-fungible token is sent to your wallet as part of the transaction. Before that happens, you must pay the original owner’s bidding price. Once the payment is completed and verified, the NFT is handed over to you. The new NFT will be visible in your NFT collection.

What happens after an NFT auction?

Once an NFT auction ends, two things may happen- the auction ends with the sale to the highest bidder, or the auction ends without a sale. When the auction ends with a sale, the NFT is transferred to the new owner once the transaction has been made and verified. The NFT will remain in the original owner’s collection if an auction ends without a sale.

What happens if no one bids on your NFT?

If no one bids on your NFT, then the auction will end without any sale. The NFT will remain in your wallet if no one places a bid that is equivalent to or more than the reserve price you have stated.

Can you sell the NFT you bought at the auction?

You are entitled to sell the NFT you bought at auction as the new NFT owner. You can choose a marketplace and put your tokenized asset for sale. Moreover, you can choose whether you want to put the NFT on a fixed-price sale or auction. You can set the selling price for a fixed-price sale, ideally higher than your buying price. For an auction, you can set the reserve price, which represents the minimum amount you’re willing to accept for your NFT. Remember that the selling price should be enough to cover the royalty percentage.