Taking a WOW auction-house refresher.
It's been a long time since I played World of Warcraft. I probably played over 10k hours back in the day. Could have mastered an instrument but instead I'm a master at a video game I haven't played in 4 years. Cool story.
In any case, I did learn a lot of important stuff about digital economies from WOW. I was considered a "goblin"; someone who spends a lot of time making gold on the auction house using various techniques. Surprisingly, digital economies largely mimic the macro economics of physical ones. We can translate what we know about WOW to the real world, and more importantly gaming as it pertains to the cryptosphere.
Hey, don't take my word for it!
Everything I Know About Business I Learned from World of Warcraft
The Value of Currency in World of Warcraft
The Real Economics in a Virtual World
Virtual Economies: Threats and Risks
Why am I so obsessed with this?
Because I know that if I can make a couple thousand dollars on a centralized auction house owned by Blizzard Entertainment, I can make a couple million on a decentralized auction house owned by all the players in the game. It's a pretty big deal, and there are rules that need to be followed.
Insider Trader: Working the Auction House
The most important thing here are the fees (AKA friction).
Before we go any farther, every player needs to understand basic Auction House fees. There are two costs associated with every item you put up for sale in the AH: the deposit and the AH's cut. You pay the deposit when you place your item up for bids. If the item sells, you get your deposit back; if your item doesn't sell, the AH keeps the deposit. The deposit runs 2.5% of vendor value per hour, so the longer the auction duration, the higher the deposit. A 24-hour auction deposit, for example, works out to 60% of the vendor value of the item.
The Sale Fee
If the item sells, a flat 5% is taken by the AH. Where does this "money" (gold) go? It disappears into the void: it's a huge resource-sink that is perfectly in line with proof-of-burn ideals. I'm still not sure if I want fees to disappear to @null or enter a #SAFU fund that can only be allocated by governance votes (just like Hive dev fund). Still considering the options.
Also, 5% is a very steep fee in the world of crypto. Even 1% on trading is considered price-gouging. Coinbase's fees are half that and they are the highest in the business, with the lowest fees being non-KYC exchanges like Binance and Huobi (0.1%). On the other hand, these are the fees users pay for FUNGIBLE assets, and obviously an auction house of this nature would be selling NFTs. Perhaps a higher fee is warranted. I'm not sure. I can always allow the network to decide with governance votes.
The Deposit Fee
This fee exists to prevent bots and humans alike from spamming the auction house with a bunch of shit that's priced too high that won't sell. Anything that doesn't sell will be returned to the owner, but their deposit will be lost. This creates an incentive to actually price goods according to their actual value so that they will sell before the time limit runs out.
There are three duration options for listings on the AH: 12 hours, 24 hours, and 48 hours: each with a proportionately higher listing fee according to the time-limit. A 48-hour listing costs x4 the deposit as 12-hour listing, while a 24-hour listing costs x2 that of the 12-hour.
The interesting fact that I must consider is that a blockchain auction house does not require a deposit fee at all. On Hive we already have to pay a fee every single time we do something in the form of Resource Credits. Users will not be able to spam an auction house built on Hive with garbage because the blocks will fill up. If the blocks fill up RC costs increase. If RC costs increase then users will run out of RCs and no longer be able to spam items that won't sell.
The system we have now already has built-in protection against such things, so there is no need to have a deposit fee on the auction house. This is a pretty significant fact to consider. Extra friction can be added to the system to burn resources, but that friction is not required for the system to operate properly.
The Buyer Pays Nothing
This is another important variable to consider. NEVER EVER CHARGE THE CONSUMER DIRECTLY. People hate being charged for random shit. When Amazon stopped charging people shipping fees they became super popular. When Web 2.0 figured out that the smartest way to do business was to give away their product and monetize the data via ads and whatever else: the Internet became a datagold-mine. When credit card companies started charging the vendors instead of their clients, the fees got hidden in the final product price. Same story.
In the context of an auction house, all the burdens of the fees must be put onto the seller rather than the buyer. Again, just like with credit cards, the fees must be hidden in the final price or the buyers will get frustrated. As a general rule of thumb, it is the sellers who are responsible adults and the consumers who are compulsive children. It is the sellers who are making money and the buyers who are living "paycheck to paycheck" so-to-speak. Learning this lesson the hard way it not a fun experience. We have to lean into the reality of the situation.
https://nftm.art/
Of course I would be remiss not to mention @cadawg's & @rishi556's NFTMart project where one can buy/sell dCity NFTs and the like. I haven't used it yet because I have yet to play any of these games, but perhaps I'll link my own project into this one and save myself the trouble of building an AH from scratch (at least to start).
That being said I know I want something with the look and feel of the WOW AH. Bids, Buyouts, and time-limits are important. Even more important are where the fees are going. Normally a dev would need to funnel the fees into their own pocket to pay for the work to get done. In the long run I know adding this kind of friction to these systems is a mistake. It's a race to the bottom. Therefore, I'd like to start at the bottom so I can't be undercut. That way I can completely corner the markets that I enter with no possibility of being dethroned.
Conclusion
I have a lot of work to do and and lot to think about. The economics of digital economies are not trivial. In fact, they are just as complicated as the legacy economy. I've yet to even describe how these NFTs will even work. I'll leave that for another post.
Posted Using LeoFinance Beta
Hi, I would like to know how long it took you to write the post? I love the way you write so clear as water.
It takes me a long time to write my posts.
My ADHD doesn't do me any favors.
Excellent! Because finding the right words takes time, I congratulate you, I find it easy to understand your content!
I think I used a few auction houses in games before but I never cared for how much it worked. I do know a fee ends up being taken and the deposit fee is a good addition. But yes I would prefer one where I didn't have to worry about paying for something that never sold. In that type of way, using RCs instead would be preferable for me.
Posted Using LeoFinance Beta
I can attest to the fees. I've flipped stuff on Ebay for years. What I learned is that I will sell an item 10x faster if I offer free shipping. Even if I price the item higher than the item value and the shipping cost combined. Its crazy how much people like the word "free".