How to approach Dutch Auctions in NFT minting
In this post, I will take all of you through the process I used to approach the World of Women Galaxy Dutch Auction and how I was able to correctly predict the price at which it would sell out.
Initial Observations: WoW is a blue-chip project. They have become ‘THE’ project to stand for female representation in the NFT space.
They have entered the mainstream. Like any celeb looking to get into NFTs gets either a BAYC or WoW (or both). WoW also does a lot of interesting things like their DAO and regular art drops which very few other collections are doing.
Drop Info :
22,222 supply 10,000 out of which in Dutch auction.
The price will start at 3 ETH and decrease every 30minutes, for 6 hours, for a final price of 0.3 ETH. The price was reduced by .2 and .3 at each alternate interval. 20 mints per transaction.
Base prediction :
Traditionally what we have seen in other collections is that floor of the second collection with double supply tends to be around 1/6th the floor of the main collection. In this case, WoW floor was 12 ETH. But we need to account that the floor included the pump from the holders getting WoWG for free. So after accounting for that, the floor should be around 10 and 1/6th of 10 is 1.66. Since there is a tendency of a deadlock in Dutch where everyone is waiting for others to mint first before minting themselves, it is always better to round off in the lower direction. So, rounding off 1.66 to 1.5
Adjusting base prediction with the specific factors of this drop:
Giving to OGs before the Dutch was not a good move. Whenever a community receives a free airdrop from a project, there is a tendency that a portion of holders will dump to get liquidity and take profits. As the WoW holders would be getting their free mint claim before the Dutch auction, those who want to dump will list their NFTs below the current floor of the Dutch.
This has a tendency to drive the Dutch price below its fair value since nobody will mint from Dutch if there is a cheaper NFT available on secondary. I got this insight from witnessing the RTFKT mint. Everyone learned this lesson from RTFKT mint. Since then most projects do the Dutch auction first and start free mint claim later so that this factor does not come into play.
20 mints per transaction encourages whales and flippers and ensures a quick sell-out. This made me realize that once the mint volume gained some momentum, FOMO would kick in and it would sell out really fast. So it was all about getting to the price range in Dutch where sufficient people get in to start the juggernaut.
The time duration of the price drop is correlated with how close to the base price the auction finishes at. The higher the time interval and lower the price drop per interval, the higher is the probability that the ending dutch price will be low. This is because people don’t have the time to stay alert for several hours of the dutch auction (here 6) Therefore volume spurt tends to happen near the base price or some benchmark like 1 ETH. The only exception is when the mint starts off with a good volume and it sells out in the first couple of intervals. Since this collection had a starting price 10X of the ending price, there wasn’t really a chance of that happening.
Although I wasn’t very familiar with the intricate details of WoW ecosystem before I started researching due to not ever being active in their discord. But I still felt like I should go ahead with my analysis and subsequently mint using that since the first couple of days of the second collection of the high-profile project will have really high volume and will provide sufficient opportunities to exit.
I didn’t think it would sell out at the base prediction due to factors 1 and 3. So I lowered my prediction by 1 interval to 1.2 eth. I thought 1.2 ETH was the maximum it would sell out by. It was likely that it drops lower to 1 eth. Since 1 ETH is also a benchmark which would make many people realize that it is a good entry point, I expected there will definitely be some sales at 1 ETH. It should most likely trigger factor 2 and sell out but it was possible that the deadlock persists and it sells out at the next interval – .7 So I predicted that 1.2, 1, .7 are the intervals that should see the most action and the Dutch should not end higher than 1.2 or lower than .7 with the end most likely being on 1 ETH.
Brought to you by: @starlordGMI (Legendary DAO)