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Dutch Auction

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A Dutch auction refers to a market structure where the asset price is determined after taking in all the bids and arriving at the highest price at which the asset can be sold.

The investors in a Dutch auction have to place a bid for the amount they are willing to purchase in terms of the quantity and the price. 

It also refers to a type of auction where the asset price is gradually lowered until the item gets a bid. The first bid is considered as the winning bid and results in a sale. However, the sale only occurs if the price agreed is above the reserve price.

Dutch auctions are often used in IPOs (Initial Public Offerings), but also in ICOs (Initial Coin Offerings) and NFT drops in the cryptosphere, where investors can enter their bid for the number of shares (or tokens or NFTs) they are willing to purchase, along with the price they are willing to pay.

Once the bids are submitted, the placements are assigned to bidders from the highest to the lowest. However, the price each bidder pays depends on the last successful bid. For example, if you bid $100 for 500 shares, but the last successful bid is $80 for 500 shares, you will have to pay only $80. 

Categories: Tradfi & Defi

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