What is an Auction and how can I participate?
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How are all the DeFi Enthusiasts doing this fine day?
on July 14, 15:00 UTC, the first SBT Auction has just started on Testnet. In this post, we’ll explain how you can participate.
What is an SBT? And why participate in an auction?
An SBT (Solid Bond Token) allows the holder to receive $K worth of ETH with a high probability, when K is sufficiently lower than the current ETH price.
The Lien Protocol uses Chainlink price feeds to determine the price of ETH.
In a regular auction, the question the bidder should be asking is “How much am I willing to pay for a derivative that will most certainly pay out $k in a few days, if the price of ETH does not significantly drop”.
The bidder can hedge away the risk that the price of ETH could significantly drop by buying a put option on other venues.
Needless to say, one has to consider several factors such as maturity timing and settlement price upon maturity to be fully hedged.
How the auction works
Auctions on the Lien Protocol will be conducted in Vickrey auction style.This is because Vickrey auctions provide an effective method of price discovery (see here for more details).
An auction has three time periods; Bid Period, Reveal Period, and Winning Period.
There are also two types of auctions on the Lien Protocol; Regular Auctions and Emergency Auctions.
Regular Auctions are conducted on a periodic basis to sell off SBTs that are collateralizing iDOL before the maturity of such SBTs.
Emergency Auctions are conducted on an as needed basis when the price of ETH experiences high volatility or a significant drop in price, causing the price of SBTs to decrease. The auction that will be taking place on July 15 is a Regular Auction and the duration of the three time periods are as follows:
- Bid Period: 24 hours
- Reveal Period: 12 hours
- Winning Period: 24 hours
Now that we’ve gone over the purpose and function of an auction, let’s take a look at how you can participate!
Once the Bid Period begins, you can see the status change as in the above screenshot.
Enter your Bid Price, Bid Amount and broadcast your transaction!
The Reveal Period lasts for 12hours. Don’t forget to Reveal your bid!!
This is important because if you forget to reveal your bid during the Reveal Period, you will end up paying the full price of the SBT ($k), not your bid price. Don’t worry too much though, the penalty shouldn’t be that significant.
If you are successful in outbidding your opponents, withdraw your funds and close out the auction. If you don’t withdraw during the Winning Period which lasts for 24 hours, you will be charged a slight penalty so don’t forget to collect your winnings!