The Future of Bidding
Levee
0x2cFd
February 21st, 2022

The lack of NFT bid liquidity leads to volatile markets, inaccurate price data, and high risks for buyers and sellers. Better bidding can alleviate this problem, and a coming paradigm shift in NFT markets can make this happen.

Selling illiquid assets…yikes

We all know that somewhat uncomfortable feeling of deciding it’s time to list an NFT for sale. I look at the beautiful art, scope the similar items listed on OpenSea, aim high and pray that someone sees in this little green alien face what I see. Underneath it all is the very palpable realization that I actually have no idea what this thing is worth.

I personally love Terraforms by Mathcastles, but just as an example.. Imagine I’m trying to sell Level 5 at {3,8}.

This token has a top active bid of 0.44, which is about 30% under the floor. But the attribute floor on Level 5 is 0.96 - so the top bid is over 50% below the attribute floor.
This token has a top active bid of 0.44, which is about 30% under the floor. But the attribute floor on Level 5 is 0.96 - so the top bid is over 50% below the attribute floor.

If I want to sell this token, what should I list it for? This problem is, I think the true value of this token is not the floor. It’s traits (level 5) theoretically make it more desirable than just any random token from the collection. It’s what you might call a "mid”, a token with a value in the no man’s land between floor price and top dollar. So what to do? I pick a price and wait or list low if I need it to sell soon.

I might get lucky. But I might not.

The risks and challenges of buying

On the flip side, looking for a new piece to add to my portfolio comes with similar reservations. I scroll through endless pages, following links from twitter shills, and finally land on a collection that suits my style. The prices seem high, I’m not 100% convinced. I’m forced to make a judgment call where the opportunity cost is a nice 2003 Honda accord. It’s just imaginary internet money anyway, right? But these little nuggets will be worth more one day! I’m just sure of it. I pull the trigger and tomorrow the floor collapses - prices tumble as the market tries to find the next best buyer.

Either you’ve been there or you will be unless something changes.

What about bids?

Had there just been bids, things might have been easier.  The lack of demand side liquidity leads both sides of the market to suffer. Let’s think for a moment about why. A trade is made when a buyer is willing to pay as much (or more) for an item than the seller is willing to accept. When I list my token, I am (in principle) revealing the lowest value I would accept in exchange for the item and searching in the abyss for any buyer willing to pay that.

Let’s imagine for a moment that we knew everyone’s real willingness to pay. Would we need to list at all? No, because as a seller we would just have to ask: is the top bid higher or lower than what I’m willing to sell my item for? We think this is what the future of NFT markets will look like. The best live bids on your tokens will live in your wallet, in your apps, etc. Whenever you feel like it’s worth it to sell, just click ‘sell’. Instant liquidity is more than just a better price (because you find the best bid), it’s peace of mind since you will always have access to selling with no delay. On a market level, liquidity means more accurate pricing data, lower risks and volatility, and an easier on-ramp for those that current don’t or can’t take the plunge.

But why don’t people bid now?

But now we need to ask, why don’t people place bids now? We first off they do. I know they do, because I’m always annoyed by some bot on OS bidding at 35% of the floor hoping I really need that 2003 Honda accord. Maybe really what we want to know is, why are bids so ‘bad’?

First, it’s risky to place many bids when you really just want one token. If you place bids on ten different tokens, but just want one, you either pray only one gets accepted or pay to cancel the rest of your bids when one does. Second, and relatedly, bids are risky because you aren’t sure you will get the thing you bid on. Here we are stuck between an NFT rock and a hard place - Do I bid on many tokens to increase my chances of getting a token at the risk of getting too many?  Collection-wide bids are a good start here, but we need even more tools. When it’s easy, manageable and free to place bids on tokens, we will start to close the gap and build much more functional markets.

A quick aside - the coming paradigm shift: unbundled markets

To be fair, much of this hypothesis rests on a coming paradigm shift for NFT markets. You can think of this shift as the ‘unbundling’ of the marketplace stack. Unbundling is coherent with the core principles of web3, and the charge is being led (I believe) by the Reservoir Protocol, a open-source permissionless NFT order book. Such an order book allows for the development of a truly decentralized and open marketplace ecosystem, where some entities facilitate sales (like wallets), some focus on particular communities (Loot.Exchange), and other focus on buyers. This presents the opportunity for entities to give specific aspects of NFT markets the diligence they deserve, which is what we are doing for bidding at Levee. You can find more about Reservoir here: http://github.reservoirprotocol.io. Having drank from the proverbial Reservoir, I can say things on the other side look bright.

Orders flow in and out of the open order book and between unrelated but mutually beneficial entities. Icons for Rainbow and Gem are for illustrative purposes only. Neither entity currently integrates the Reservoir Protocol
Orders flow in and out of the open order book and between unrelated but mutually beneficial entities. Icons for Rainbow and Gem are for illustrative purposes only. Neither entity currently integrates the Reservoir Protocol

Where are we headed?

This is a nice story, but let’s summarize and be clear about where we are headed.

The notion of “instant liquidity” feels extremely natural to me. I have NFTs in my wallet. I should be able to sell them at the click of a button. To do this effectively, there needs to be an open bid on the other side of the transaction. Again, why list and search for the top buyer when her bid is already waiting for you in your wallet?

While we aren’t focused on selling at Levee, you can sell you NFTs on our site in just this way. This is what a sample wallet looks like with 100% liquidity. All the tokens can be sold instantly. And on top of that - I have a constantly updating sense of what my portfolio is actually worth.

You can tell me really like Flipmap. Notice the how trait bids put the top offer on the vanilla composition trait at 5x the collection floor.
You can tell me really like Flipmap. Notice the how trait bids put the top offer on the vanilla composition trait at 5x the collection floor.

Unbundling the marketplace stack has allowed Levee to focus specifically on the bidder. Our work has identified four areas where we can help you bid better:

  • Better Exploration

    By having a better experience in searching for, tracking, and evaluating new projects, Levee can help you find the next collection that you are excited about.

  • Better Bidding

    Making the best bids possible requires flexible bid types. We have started by focusing on collection-wide bids: bids on any token in a collection, and trait-specific bids: bids on any token in a collection with a particular trait. Expect to see even more flexible bid types coming soon.

  • Better Tools

    Bidding in an ongoing and interdependent action, so being able to make and manage bids requires good tooling. There are many areas to advance in bid tooling. Notably, tools might be different if you are a retail buyer, an amateur flipper, or a professional market maker.

  • Incentives

    Bidding is an essential action for marketplace functionality. We think it deserves to be incentivized. To prove this we are giving whitelist access to the Levee Early Supporter Pass to wallets that are top liquidity providers on Levee over the coming weeks.To be a top liquidity provider all you must do is have a top bid on any NFT (collection or trait).

The coming Levee Early Supporter Pass. Date of release and WL access specifics coming soon.
The coming Levee Early Supporter Pass. Date of release and WL access specifics coming soon.

NFT markets are evolving rapidly, and we see bidding as a core function in the coming evolution. If you have questions, ideas, skills, or insights to contribute - reach out. Happy Bidding!

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