An Explainer of the SKALE Auction on Activate | ConsenSys Codefi
We believe that users should determine the value of decentralized network participation, not us. This is why Activate will be facilitating the SKALE Network Launch & Stake through a Dutch Auction mechanism, which promotes fair and transparent price discovery. Every successful auction participant will receive their respective token allocation at the same price and this price is determined by their collective participation.
What is a Dutch Auction?
A Dutch Auction is a decreasing price auction featuring a single seller and multiple buyers who collectively determine the final clearing price. The seller determines the number of tokens available for the auction and sets a reserve price that is the lowest price at which the tokens will be sold once the auction period ends.
How it works
At the onset of a Dutch Auction, a fixed supply of tokens are offered for a fixed amount of time. During the auction, the starting price per token decreases constantly over time until either 1) demand for the total token supply is met or 2) the auction period ends at the pre-defined reserve price (price floor).
Before you make a bid
In order to participate in the auction, you are required to:
- Create an account and verify your email address
- Submit your identity documentation for KYC verification
- Demonstrate you’re familiarity with the SKALE network by completing a short quiz
In order to successfully launch and bootstrap new networks, an actively participating user base is paramount. For this reason, if you wish to purchase more than $20,000 in the SKALE auction we ask you to demonstrate your intent to use in order to deter speculative, non-contributive participation.
Making a bid and arriving at the final price per token
During the auction, you determine at which price you would like to submit your bid, how much money you want to spend in USD, and can pay in the cryptocurrency of your choice: USDC, Ether, DAI, or Bitcoin. The price per token that you ultimately pay will be less than or equal to the quoted price at the time since the token price decreases over time.
Demand for tokens is calculated as the sum of payments received from users divided by the current price per token. Once demand equals the total amount of tokens available, the auction ends and the token price is locked in. If the auction concludes at the end of the auction period everyone will receive their tokens at the pre-defined reserve price, also known as the price floor.
For example, let’s assume the total amount of available tokens for a given 3 day auction is 10M with a starting price of $1 that gradually declines to the end price of $0.50. At the start of the auction you place a bid for $100 at the price of $1, which entitles you to at least 100 tokens or more. At the end of the first day the token price reaches $0.84 and the total amount of bids submitted is equal to $8.4M. Since the total available supply of tokens has been met ($8.4M/$0.84 = 10M) the auction concludes at the final auction price is set at $0.84. The tokens you receive for the $100 bid you submitted is 119 tokens ($100/$0.85=119).
Token distribution
Once the auction ends, users are able to claim their tokens through Activate within 21 days from the close of the auction. The amount you’re owed is calculated as your payment amount divided by the final price per token.
To sign up for the upcoming SKALE auction please register here!
Originally published at https://codefi.consensys.net on July 7, 2020.
