How a Dutch Auction Works for an ICO

What is a Dutch Auction?

A Dutch auction is a price discovery process in which the auctioneer starts with the highest asking price and lowers it until it reaches a price level where the bids received will cover the entire offer quantity. Alternatively, a Dutch auction is known as a descending price auction or a uniform price auction. Dutch auctions are appropriate for instances where a large quantity of an item is being offered for sale, as opposed to just a single item.

A Dutch auction can be used in an IPO or an ICO to figure out the optimum price for an offering. They are also used by government agencies for the public offering of Treasury bills, notes, and bonds and Kryptoin is using it for their ICO.

Dutch Auction Process

In the Dutch auction process for an ICO, the underwriter does not set a fixed price for the tokens to be sold. The company decides on the number of tokens they would like to sell and the price is determined by the bidders. Buyers submit a bid with the number of shares they would like to purchase at a specified bid price. A list is created, with the highest bid at the top. The company works down the list of bidders until the total desired number of shares are sold.

The price of the offering is determined from the last price covering the full offer quantity. All bidders pay the same price per share. A Dutch auction encourages aggressive bidding because the nature of the auction process means the bidder is protected from bidding a price that is too high.