What is a Descending Price Auction?

Hello Metronome Community,

Thank you so much for the great conversations we’ve been having on social media. One area in which we’ve noticed a lot of questions is the auction mechanism that Metronome will employ: the descending price auction. Let’s explore that a little more here.

A descending price auction is an auction in which the price per item — in our case, Metronome or MTN — begins at a high, maximum price. As time goes on and unsold MTN remains, the price declines. For Daily Supply Lots, every 60 seconds the new price drops to 99% of the previous price. Purchasers get to purchase at the price they see as fair assuming MTN remains available at the desired price. (Note: the Initial Supply Auction has similar, but different mechanics.)

We believe this economic theory is sound, and it also may discourage large purchasers — known as “whales” — from soaking up large portions of the supply. Fewer whales soaking up supply is better for everyone else who wishes to participate.

While it is expected that few purchasers will purchase at higher prices, we also expect a waterfall of volume as market price is discovered by the auction participants.

Let’s take a look at a hypothetical worked example:

The following numbers are hypothetical for the sake of example. Suppose that the starting price of the Daily Supply Lot is 1.00 ETH (~US$300 at the time of writing). During the first 100 minutes of a daily supply lot, the price movement will look like this:

For our example, let’s add some context by assuming purchases look like this:

• The auction continues until all MTN are sold. As the price descends, each purchaser can choose to purchase at the price they see as fair.
• Upon purchase, MTN is immediately sent to the purchaser. There is no need to wait until the end of the auction for purchasers to receive their MTN.
• In our example, all the MTN sold out in 100 minutes. This means that the final and lowest price of MTN was 0.366 ETH.

The next auction will begin at midnight UTC following the most recently closed auction. The maximum price will be set at twice the previous auction’s closing price. So, in our example, the next auction would begin at a price of 0.732 ETH (or 0.366 x 2) per MTN. The same auction mechanics apply to the new auction, having the price reduced to 99% of the previous price every minute.

More to come,

• The Metronome Team

UPDATE: For various reasons, the Metronome team has chosen to use the new symbol “MET.”
Update 2: Added clarity this is for a daily supply lot.