Sotheby’s Attempts a New Auction Model Amidst the Economic Downturn

In Sotheby’s’ 300-year history, the auction house has stuck to certain traditions, and there is perhaps nothing more traditional than the English auction system. In that system, bidders compete with each other to drive prices up––or snag a deal when there’s little interest. But Sotheby’s announced earlier this week that it would be begin employing a Dutch auction model for its new Gen Art Program, NFT sales dedicated to generative artworks by blue-chip digital artists.

In a Dutch auction, auctioneers introduce the highest price the piece will be sold for before decreasing the price in increments until a buyer bids or a set lowest price is reached.

To inauguruate the new program, Sotheby’s tapped Vera Molnar, the 99-year old early generative art pioneer who began using computers and algorithms to make art in the 1960s. Molnar found a new audience during the NFT gold rush of 2021, leading to an exhibition of her work at the Venice Biennale last year. The series, titled “Themes and Variations,” will go on sale on the Sotheby’s Metaverse platform on July 26.

The Gen Art Program will highlight two to three artists per year and is powered by Art Blocks Engine, Web3 software developed by the team at Art Blocks, who single-handedly created the market for generative art in the Web3 ecosystem. By using the software, not only will collectors be using a Dutch auction model, but will be able to buy works entirely on-chain.

Sotheby’s credited Art Blocks with the decision to experiment with the Dutch auction model, which the platform utilizes in its own marketplace.

“Art Blocks built a whole new ecosystem with a new type of collector who are passionate about generative art,” Michael Bouhanna, Sotheby’s Head of Digital Art & NFTs, told ARTnews. “Collectors are very used to the process in which they purchase these type of artworks, which is the Dutch auction model that has been very successful format for Art Blocks and generative art sales.”

Erick Calderon, founder and CEO of Art Blocks, first began using the Dutch auction model as a way of calming down the fever pitch bidding occurring on his platform in the summer of 2021.

“This originally came into play when we would have editions of 500 or 1000 and we’d have 20,000 people in our Discord on the day of a drop asking questions,” Calderon told ARTnews, referring to the messaging platform where the NFT community often congregates. “While not everybody from that Discord community was there to purchase artwork, there’s a clear imbalance between the supply of art and potential demand.”

By letting collectors know the highest bid up front, only serious collectors were liable to enter the fray. And, while it seems counterintuitive, Dutch auctions typically result in higher sales as bidders confront that they only have one chance to bid, as the first bid that comes in is the bid that’s taken.

Can Sotheby’s expect the same excitement that led Calderon to depend on Dutch auctions in the first place? It’s hard to tell in an economy of mixed signals, both in crypto and the larger market.

News circulated yesterday that Brian Beccafico, who goes by Arthemort on Twitter, was leaving Sotheby’s, where he headed the Paris office’s NFT activity.

“I was made aware of the fact that they were canceling my position and NFT activity in Paris on June 12th,” Beccafico told ARTnews, before clarifying that there would still be some activations in the future.

The decision to cut back NFT programming in Paris followed months of tightening regulations and a change in how France’s taxes crypto capital gains, according to Beccafico. The new regulatory environment made Paris a less competitive marketplace for NFTs compared to New York or Hong Kong. Still, Beccafico said that Sotheby’s appears to remain committed to NFTs and Web3, adding that the New York department is “running at full speed.”

Despite a steady flow of bad news, from the collapse of crypto companies to high inflation rates, the auction house has had some impressive NFT sales this year. Just two weeks ago, the Three Arrows Capital bankruptcy sale brought in $11 million. And, despite some messy infighting, the “Glitch: Beyond the Binary” sale did commendably.

“We are already achieving a higher sales results than last year,” said Bouhanna. “We see the market for certain categories, especially including generative art, are attracting a great pool of collectors. We launched this new program to respond to a demand and to adjust out strategy by bringing in some new functionalities and a new format of sale that is in line with that demand.”

Auction results in late July will tell if Sotheby’s has succeeded at giving collectors what they want.