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How do auctions work?
Selling NFTs by auction can be fun and exhilarating. This guide explains the process for timed auctions on Sparkles.
The first iteration of auctions on Sparkles automatically completes the sale of an NFT to the highest bidder. This is also known as an English auction.
When listing an NFT for an auction, you will need to enter the starting bid price.
This will be the minimum amount for a valid first bid to start an auction.
In addition to the starting bid price, there is an option to set a reserve price.
If a reserve price is not met when an auction ends, no sale will be completed for that NFT.
Setting a reserve price is not a requirement, though you may decide there is a minimum amount you are prepared to accept for an auction to complete. If so, you will need to provide a reserve price.
You are required to enter an end date and time for the expiration of an auction.
This can be one of the default time periods, or you can choose to enter a custom time period for the auction to end.
Once an auction begins, it cannot be cancelled if valid bids have been received.
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Preventing auctions with valid bids from being cancelled gives confidence and certainty to bidders on auctions.
With this in mind, it is important for those setting up auctions to ensure they enter a starting bid price they are satisfied with, in addition to setting up a reserve price - if required.
When bidding on an auction, for a bid to be valid, it must:
- Be at least equal to the starting price if it is the first bid on an auction.
- Be at least equal to, or greater than, 5% more than an existing valid highest bid if there are already bids on an auction (e.g., if there is a current valid highest bid for 100 FLR, a new valid highest bid must be at least, or greater than, 105 FLR).
Once a valid bid is made, it is locked into the auction by the smart contract. This means that a valid highest bid cannot be withdrawn. It can, however, be outbid, at which point the bid is unlocked and returned to the lower bidder.
With this in mind, it is important that those bidding on auctions be aware that, if they place a bid and it wins the auction, that bid cannot be withdrawn as the smart contract will execute the transaction at the expiration of the auction.
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Preventing valid highest bids from being withdrawn gives confidence and certainty to sellers of auctions.
Any new valid bid placed within the last 5 minutes of an auction automatically extends that auction for a further 5 minutes.
Once an auction with a valid winning bid ends, that winning bid will be automatically accepted. The winning bid will be transferred to the seller, with the auctioned NFT being transferred to the winning bidder - there is no need for either party to cover the gas for this transaction.