Auction
Instant Liquidity to Sell NFTs
Last updated
Instant Liquidity to Sell NFTs
Last updated
When borrowing an NFT, traders can can exit a short position any time via returning a purchased NFT or refinance. When lending an NFT, the supplier of a position has the flexibility to start an auction any time.
The auction is a Dutch Reverse Auction and lasts for 36 hours. During the auction, Particle smart contract offers to buy any NFT from the same collection, with a price linearly increase from 0 ETH to the ETH amount locked in this position minus the accrued interest. The offered auction price is an instant liquidity for any owner to sell their NFT.
Recall that the locked ETH amount is the collateral agreed by the supplier. In essence, the auction is a best effort to acquire an NFT from the market using all available liquidity. The figure below describes the auction price over the auction period.
During the auction, the trader of this position can still purchase an NFT any time, with price up to the max amount (as if the auction doesn't happen). More concretely, the trader has the privilege to front run others to use a price that the auction hasn't yet linearly increased into.
If the auction is executed, i.e. an NFT is purchased through the auction, the supplier is eligible to withdraw the NFT with interest, and the trader realize the PnL as the following (as if an NFT is bought by trader at the auction buy price):
Realized PnL = Sell Price - Auction Buy Price - Accrued Interest.
On the other hand, if the auction concludes after 36 hours without a buyer, the supplier is eligible to withdraw the ETH amount locked in this short position (i.e. seizes collateral) and the trader forfeits the margin. The figure below describes this scenario.
The supplier can also stop the auction in the middle, if a buyer has not yet showed up. The position then remains open with all previous parameters unchanged (as if the auction has never happened). There is one restriction that the supplier can only stop the auction at least 1 hour after the auction starts, which protects traders from rapid (malicious) position state manipulation.
