Dutch Auction

In a Dutch auction, the seller (or protocol) sets a high starting price that steadily falls, at fixed intervals or continuously, until a bidder accepts the current price or a preset floor is reached. Unlike an English auction, where buyers compete by raising their bids, a Dutch auction rewards timing: waiting risks losing the item to someone willing to buy sooner, while bidding too early means paying more than necessary. The first participant to accept the falling price wins, and the auction ends immediately.

Crypto projects adopted this format to fix problems with fixed-price sales. Gnosis ran one of the earliest crypto Dutch auctions for its 2017 ICO, raising roughly $12.5 million within about ten minutes, and Tezos raised more than $200 million the same year using a similar descending-price structure. Solana later distributed part of its supply through a Dutch auction hosted by CoinList. NFT collections use the same idea for minting: the price drops from a high ceiling every few minutes until demand meets supply, letting the market rather than the creator set the price and reducing guesswork around price discovery.

DeFi lending protocols apply Dutch auctions to liquidations as well. MakerDAO's Liquidation 2.0 system replaced slower English-style collateral auctions with Dutch auctions that settle instantly once a keeper matches the falling price, and support partial fills. Because the price decays gradually instead of through competitive bidding, keepers have little reason to overpay on gas fees to execute first, which curbs the gas wars that plague first-come, first-served liquidation systems.

The main risk is miscalibration: a starting price set too high, or a decay rate that falls too fast, can let an asset clear well below its fair market value before genuine demand has a chance to bid.