Reverse Dutch Auction Mechanism

A Reverse Dutch Auction refers to an auction where the FIL/pFIL's bid level increases gradually with time. When the bid level is desirable for bidders (to perform arbitrage), bidders can make a partial or full bid for the auctioned FIL in exchange for their pFIL holdings.

Let us go through an example where the Repl protocol puts 100 FIL up for Auction.

Upon receiving the unlocked FIL from any Miner Actor, the auction will be initialized with a starting bid of 0.5 FIL/pFIL. This means that it will cost bidders 200 pFIL to bid for all the FIL in the auction. Note that there are multiple auctions ongoing simultaneously at different bid levels.

The auction's bid level will proceed to increase steadily with time, at a rate of 0.00002 per second, until it reaches 1 FIL/pFIL, where it will remain until the auction expires. Currently, the auction duration is 24 hours (86400 seconds). After expiry, the auction will then be reset, with its bid level reverting back to 0.5 FIL/pFIL. Note that the auction will also reset if the auction pool is < 1 FIL.

Assume that the current market bid is 0.88 FIL/pFIL. If the auction's bid level rises above 0.88 FIL/pFIL, this presents an opportunity where bidders can arbitrage between the auction and the market.