Auctions play a critical role in distributing digital collectibles to market participants. But the key challenge that infrastructure builders face is how to adapt traditional tools and practices efficiently and securely to the world of Web3. Front running, gas wars, and other concerns cannot be ignored. Confidential tools enabled Oasis Sapphire can accelerate the improvement of Web3 auctions by removing the limitations of transparent networks to enable safe, efficient and fair auctions. This article explores why these solutions are uniquely possible on Oasis and not possible on transparent blockchains like Ethereum. ‍

Mechanics of Web3 Auctions 

Centuries of auctions have resulted in many well-respected forms of execution, including Vickrey auctions, English auctions, Dutch auctions, and more. Check out Wikipedia for a refresher on auction types. But how do these formats translate to the digital world?

Dutch auctions are a commonly used design in Web3, but this mechanism can paradoxically lower the market clearing price (MCP) of a collectible. As a result, last-minute bidding frenzies, inefficient price discovery, onchain gas wars, and other problems are inadvertently created.

Various forms of sealed bid (or blind) auctions are less common in crypto. These types of auctions usually require all bidders to simultaneously submit bids and critically, no bidder knows the bid submitted by any other participant. The highest bidder pays the price they submitted and wins. Attentive readers may already know the reason this format is uncommon in Web3.

The answer is: transparency.

Limitations of Transparent Blockchains

Bitcoin, Ethereum and other blockchains were created on the principle of full transparency, but this approach encounters serious limitations when attempting to manage any amount of personal data onchain. For years, teams have developed software to amend the privacy problems for these chains. But the fundamental design characteristics of these blockchains simply cannot support advanced or privacy-preserving auction mechanisms.

Even with simple auction formats like Dutch auctions, the complexities are crippling (e.g., gas wars, mempool clogging, frontrunning). Transparent blockchains are valuable, but finding a balance between transparency and privacy is one of the biggest issues every blockchain developer faces. Advancing the financialization and sophistication of onchain activity requires privacy.

In short, the key limitations of transparent blockchains for collectibles auctions are:

• No Confidentiality: Because all transactions and smart contract interactions are visible to everyone, concealing bid amounts is impossible.
• Front-Running: Because all transactions are visible in the mempool before confirmation, a competitive bidder could quickly submit a higher price and undermine the integrity of the “secret” auction.
• Congestion: Because transparency prevents secret auctions, transparent networks cannot enjoy the congestion-relieving effects of sealed bid auctions that prevent gas wars, offer cheap execution, and ensure a smooth bidding queue.

Unlike fully transparent networks, the Oasis Network built this confidentiality natively into its base layer architecture. The Oasis community uses the concept of “smart privacy” to offer transparency when its wanted and privacy when it’s needed. And smart privacy can transform Web3 auctions. 

Oasis smart privacy tackles these challenges. 

‍Benefits of Sealed Bid Auctions 

Transparency by default (e.g., Ethereum) can only be a limitation for private auction formats if these auction mechanisms are actually useful. So, what are the benefits of sealed bid (a.k.a., secret) auctions? Below is a succinct list of why this format is well-suited for an efficient, privacy-centric Web3 economy.

• Enhanced Privacy: Bid amounts and bidder identities are kept confidential until the auction concludes.
• Fair Bidding: Bids are not visible to other participants, which ensures bids reflect the true value a bidder ascribes to an item.
• Limited Manipulation: Bids are secret, which significantly mitigates the ability of other participants to artificially inflate or otherwise manipulate instead of submitting their fair value proposal.
• Broader Participation: Each of the above benefits have a compounding effect of enticing other participants to join auctions with the knowledge that the process is fair and secure. 

‍The Advantage of Oasis Confidentiality

Confidentiality and complex computation in sealed bid auctions necessitates a blockchain environment with the privacy and computational capabilities of Oasis Sapphire.

With the robust, time-tested confidentiality features baked into the protocol layer (e.g., confidential state, confidential mempool, confidential compute), Oasis provides the best foundation for advanced NFT auctions and marketplaces anywhere in the digital collectibles industry.

NFT auctions run with tools build on Sapphire will be:

• Trustless: hosted in a secure and transparent auction environment
• Private: maintaining secrecy of onchain user data
• Efficient: avoid the need for overcollateralization or long auction times
• Flexible: include various auction types and key features like bid updating or canceling
• Innovative: setting a new standard in onchain auction mechanisms

Transparent-by-default networks simply cannot compete in this sphere of technology. 

‍The Future of NFTs and Privacy

Leveraging the unique privacy features of Sapphire creates a new dawn for digital collectible auctions powered by Oasis. With simple, private, and efficient mechanisms for onchain auctions, the user experience for every bidder and seller will never be the same.

Join Oasis on this transformative journey! 

For curious readers who want to learn more about NFT auctions: 

• Read this blog published by the a16z crypto team. 
• Read this thread by William Wendt, Business Development Lead at Oasis. 
• Listen to this podcast recorded by the a16z crypto team. ‍
• Explore the collaboration between Oasis and NFTB here.