Reserve Price and Auction
Since the beginning of the NFTFY protocol, we had the idea of implementing an Exit Mechanism that would guarantee all the rights of the fraction holder and the proper functioning of the protocol.
One of the clauses of this mechanism was the Exit Price, which is the amount that someone needs to pay to redeem the entire NFT. The Exit Price is defined by the user during the Fractionation process and must be a fixed value to avoid problems between the Fraction Holders.
This amount is required to redeem the NFT. However, following market requirements, we designed another way to set this price for NFT: now, the user has the possibility to set a Reserve Price as the minimum amount needed to buy the entire piece. And once that Reserve Price is reached, it will start an auction with a duration determined by the user, allowing anyone to place a bid above that price.
To fractionalize using this new method, you will have to select the “Highest Bid” option, as shown in the image. There will be a community fee on the number of fractions generated. These collected fractions will be stored in a vault to be used as rewards in the $NFTFY staking program. That way, if you want to generate 10,000 Fractions of your NFT, considering the minimum fee, 100 Fractions would go to the NFTFY vault.
At the end of this process, you must set the NFT Reserve Price, which will be the minimum amount someone needs to pay to start the Auction. By clicking on Fractionalize, your NFT will be staked in the Smart Contract, and you will receive the number of fractions you chose, discounting the amount defined in the Community Fee. In the example above, the user has set 10,000 Fractions and a rate of 1%, receiving 9,900 Fractions.
After that, the NFT will be displayed in our marketplace and you can start selling Fractions of it by creating Sell Orders, just like explained in the article “How to easily trade Fractions on Nftfy”. Anyone will be able to either buy the Fractions you put on sale or create new Buy Orders aiming for a better price.
If someone wants to buy the entire NFT, this person just needs to click on the “Place a Bid” button and the following modal will appear:
In the case presented in the picture, the Reserve Price is 2 ETH and the user has 20% of the NFT Fractions. Therefore, this person needs to pay 1.6 ETH to get the Auction started.
Now, with the countdown running, anyone can place a bid on top of that Reserve Price. The user just needs to click on “Place a bid” and their bid will be validated and placed as shown in the picture below:
Once the countdown ends, if you were the winner of the Auction, you will be able to Redeem the NFT. If you haven’t participated in the Auction, but had purchased some Fractions before, now you will be able to Claim your ETH in the Portfolio section, proportionally to the number of Fractions you have.
This new method in the Fractionalization process will allow NFT owners a better price discovery for their NFTs, as the market will define the final price of the NFT. Moreover, the community will be able to take a chance to place their bids in lower valuations, allowing everyone to participate in the fantastic world of NFTs.