Secondary Market Liquidity, The GBM Acuction

I’m opening this thread to start the discussion about how to make the secondary market more liquid. I spent some time thinking about the NFT-liquidity problem and will share my thoughts in this post. A week ago @coderdan shared the blog post about the Gonnaud-Bessire-McDonaugh auction in the #dao-discussion Discord channel. I think this auction system is a great starting point.

Before I share my thoughts about GBM I want to point few necessary changes in the secondary market no matter will GBM be implemented or not:

  1. Fees should be much lower. The current 3% (it will be 3.5% soon) fees will kill the “white” secondary market and will encourage the growth of the “black” market with middlemen. High fees also exclude essential market agents: the market makers and speculators. These agents make markets more efficient. There are concerns about DAO and Pixelcraft revenues (Pixelcraft gets 2% and DAO 1% of the Baazaar fees). But revenue depends not only on fees but also on volume. And changes should significantly increase trades amount and volume.
  2. Bids (offers) should be implemented in the Baazaar.

While besides the GBM auctions for the primary market exists several decent options for solving the problem of more fair and equal sales and wearables distribution, for the Baazaar, the GBM auction looks like the best solution for solving the liquidity problem. The incentive mechanism of the GBM auction will organically create a liquid market with efficient prices. Liquidity is one of the biggest problems for NFT and Aavegotchi could be pioneers to solve in an elegant way.

One disadvantage that the auction system has is capital inefficiency: bids should be locked and money can’t be used anywhere else. But why can’t we treat GHST locked in the bids as staked for FRENS? Instead of lying around in the staked contract earning FRENS, GHST can participate in the secondary market and still earn FRENS.

Another option can be to use FRENS incentives together with the regular auction system which is widely used (including Opensea.io).

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I don’t personally mind a 3.5% fee when its directly on the platform and I know the money is going into the community. 3.5 sounds very low in the gas fee world we are in, however one day that can change.

Short term actions that promote network marketing effects and increase participation on the Aavegotchi platform are encouraged. Efforts are underway to improve the effectiveness of the DAO voting and governance. Many good ideas emerge from the community but our process for vetting proposals and implementing changes can be improved.

I’m really intrigued by the GBM auction model for the Baazaar, especially operating in parallel with alternative regular auction systems. It would be interesting to compare how these auction models set prices, streamline bidding and generate revenues.

Not sure how to determine what level of market fees begins to erode market efficiency, particularly in the bootstrap phase of an evolving ecosystem. Early adopters often pay higher prices when new products and opportunities roll out. The DAO can always decide to lower fees in the future as the ecosystem matures and the Gotchi markets stabilize.

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