Be patient with us as we update our documentation.
Auctions markets are the primary markets for financial market products. Primary markets are beneficial in that they are transparent (there is no private information), cost-effective (no slippage), and they are fairly competitive (no preferential treatment). Auctions have been demonstrated to only be able to fulfill a subset of the following properties:
- 1.Individually rational
- 2.Incentive compatible
- 3.Ex post efficient
- 4.Does not require auction subsidy
- 1.Individually rational: In a DeFi environment, the auction mechanism has to conform to individual rationality—that is, it assumes that users can choose not to play/participate if they think they can end up worse off by playing.
- 2.Incentive Compatible: The auction also has to be incentive compatible, that is, the users should be able to achieve the best possible outcome by acting in accordance to their true preferences, rather than trying to play according to what other players are doing. This is especially the case because there is no private information at all on a blockchain like Ethereum. More importantly, incentive compatibility will minimize the number of expensive and high-latency transactions that need to be performed on the blockchain.
- 3.No Auction subsidies: The mechanism does not need to be efficient, that is, that it allocates the goods to the people that desire it most. Which is a good tradeoff against requiring any type of subsidy or capital from the auction contract.
Buttonwood Auctions ("ButtonAuctions) is a double-sided permissionless Auctions market that allows a large number of buyers and a large number of sellers to figure out a fair price to transact. ButtonAuctions allows anyone to create a custom Auction for any pair of ERC-20 tokens. It has a few different use cases including:
- Primary Market: ButtonAuctions can be used for price discovery of any pair of ERC-20 tokens. For new tokens, ButtonAuctions allows for liquidity to exist from the start, without the need of a market maker or liquidity provider. For tranche tokens, this means that ButtonAuctions will be the primary market for ButtonZero, enabling liquidity before bonds go live on the secondary market.
- Treasury Diversification: This allows DAOs to utilize their governance token. DAOs can use Auctions to raise capital or diversify treasuries by selling large orders of their governance token fairly to the market.