Impactful Auctions: Web3’s Opportunity to Revolutionize Public Goods Funding | Loring Harkness

[Music] Hey guys, my name is Lauren Harkness. I'm one of the founders at Paddle Battle. And damn, our logo looks good on the big screen, right? They've got a cool setup here. So, Paddle Battle is an impactful auction platform.

What does that mean? It means we auction off cool and we donate the money to public goods. So, what are we talking about when we talk about cool Well, for example, right now on Paddle Battle, we are auctioning off a DAP node home with your own PFP printed right on the lid. It's not a sticker. It's a custom print job only available on Paddle Battle.

Vitalic, I know you're here today, my lady. And where does the money go? Well, we do fundraising for some of Web 3's best public goods projects, including Giveth, Protocol Guild, Glow Dollar, Roti, and many, many more. But I'm not here to shill paddle battle to you. I'm here to talk about novel auction mechanisms.

And even better, I'm going to talk about the dominant theory or dominant strategy for winning each one. But first, you're probably thinking, who cares? Well, let me give you two good reasons. First of all, there's a ton of money in impactful auctions. This is something which was pioneered in web 2 and it's already a $7.

5 billion business and it's growing at a tremendous rate. It's projected to reach $17 billion by the end of this decade. And it's companies like eBay which are doing this, right? But this is a perfect opportunity for us to onboard users and organizations to web 3 because web 3 can do this better. Think about it.

We have the uh global payment rails. We have smart contracts for automation and we have trustless verifiability. And by bringing impactful auctions to web 3, we're bringing the right type of people. We're bringing value aligned people, not the scam coins and the pump and dumpers. We're bringing people who actually want to build something of value and make the world a better place.

The second reason impactful auctions are awesome is because we're slaying moolak. For those of you who don't know, mulak is the god of coordination failure. Whenever you have a group of people who have a common goal but aren't able to achieve it because they lack incentives or the proper coordination structures, moolak is summoned. But one of the things I love about impactful auctions is that we bring together these three different actors and they all act in their own self-interest, but somehow magically public goods funding appears. So, let's break it down.

Well, the auction host puts up a prize and the biders pay good money for it. I'd be willing to pay good money for a DAP node home with a custom PFP on the lid. I think most people would. The projects, it's pretty self-evident. They need money to continue their good work.

And you might be thinking, "But what about the auction hosts? They're donating the auction prize." And yes, that's true, but they're getting something much, much better in return. Number one, they're getting incredible branding as a leader in public goods funding. Number two, they're getting a viral marketing campaign.

And number three, in some cases, they're getting a sales lead generation tool. And last but not least, everyone is incentivized by the fact that it's fun. So this is part of a growing trend in web 3. There's lots of amazing projects and protocols which are thinking about how we can align interests and allow different actors to act selfishly but somehow create public goods funding from the mix. I don't have time to get into all these amazing projects here today, but I'm actually talking at ECC in canes on this exact topic.

So I hope you'll see me then as well. Okay, so impactful auctions, right? We auction off cool and we donate the money to public goods. And when you think of auctions, you probably think of this guy. $10, $10, $20, $20, $30, $40, $50, right?

This is what we all think of when we think of auctions. A guy at a podium with a hammer, people in the audience with paddles. Paddles. That's where the name Paddle Battle comes from. But this is just one type of auction.

This is called an English auction. And the rules are pretty simple. It's open, meaning all the biders can see all the bids in real time. It's ascending. It starts low and the price goes up.

And of course, it's winner pays, meaning the winner pays and gets the prize and everyone else pays nothing and gets nothing. It's simple. It's plain. It's boring. So, we're going to talk about novel auction mechanisms.

And I see you in the audience. You look like this guy. You're super skeptical. The thought of new ideas, of innovation, it makes you uncomfortable. That's why you're here, right?

No. Um, but some people are skeptical. This guy was skeptical. He said, "Humans are very bad at some game theory problems, and Paddle Battle exploits that. People can play stupid games and win stupid prizes if they want, but I'm not a fan."

to which I reply in the words of the immortal Gandalf, "Do not take me for some summoner of cheap tricks. I am not trying to rob you. I'm trying to help you." To which he replied, "Oh, I didn't realize the proceeds were being donated. I'm much less bothered."

So, open your minds, but more importantly, open your wallet. And this is where audience participation comes in. Okay. So, I'm going to auction off a $1 bill. I've got it in my back pocket, but both my hands are uh busy.

This is a special type of auction called an all pay auction. And the rules are really simple. You bid, you pay. Regardless of whether you're the highest bidder or not, you pay. Okay.

So, let's start the bidding at 10 cents. Do I have 10 cents? Anyone want to buy a dollar for 10 cents? You, sir? Yep.

Okay. We got 10 cents, 20 cents, 20 cents, 20 cents. Do I have 30 cents, 30 cents? Yeah, we got 30 cents, 40 cents, 40, 40 cents, 50 cents, 50 cents. Okay, now we're rolling.

Do you see what we just did? Because everyone is paying the sum of all of the bids, which you're going to pay by the way, is now more than $1. So, what did we just do? We created the infinite money glitch. And this is awesome.

This is public goods funding money printer go. And you may be thinking, well, this is just a silly example and we're humoring him. It's just a dollar. But in fact, on Paddle Battle, our very first auction, we auctioned off 100 USD Glow valued at $100. And the highest bidder, well, she paid $22.

I have more time than that. I know I do. We started late. Um, and in total, we raised $600 for DeFi scan. And the the reviews were outstanding.

In fact, the highest bidder said, "Worst deal ever." So, the dominant strategy for an all-pay auction is do not play. Because you may think that buying a dollar for 10 cents is a good deal, but then you get on this slippery slope and pretty soon you're paying $22 to get $100. Fortunately, you're funding public goods in the process. The next type of auction I want to talk about is called a penny auction.

And the rules here are a little bit more complex. Each bid must be 1 cent higher than the previous bid. 1 cent, 2 cent, 3 cent. No exceptions, but each bid comes with a bid fee of $1 that you need to pay. And each bid resets the timer.

When the countdown timer counts down and reaches zero, the auction is over. The highest bidder pays their bid and gets the prize. But notice something here. The highest bid is always going to be 1% of the bid fees. So, the majority of public goods funding here doesn't come from the highest bid, it comes from the bid fees.

And these auctions basically feel like this because the countdown timer is ticking, ticking, ticking down and then someone submits a bid at the last second and it starts all over again. It's horrible. It's agonizing. You will lose sleep. I have lost hair.

It's painful. Okay, but it works. this auction, the DAP node home auction which I mentioned earlier, it's live right now and you can bid on this DAP node home device. This is an old screenshot, but by now we've raised more than $400 for ro key and it's been going on for about 2 months now. Fortunately, some big brain on Twitter did the math and correctly pointed out if everything goes according to plan, this auction is going to last 33 years.

Oof. So, what's the dominant strategy for winning a penny auction? The dominant strategy is you do not play to win. You simply play to prevent others from winning. which means that you are going to bid as seldom as possible.

If the countdown timer is ticking down, 1 minute, 30 seconds, 10 seconds, and someone else submits a bid before you do, perfect. The countdown timer resets and we go again. You sat that one out. You saved your energy. You saved your resources.

You lived to fight another day. Okay, let's talk about another type of auction called a sealed bid auction. This is very similar to an English auction. It's ascending and winner pays, but the key difference is that all of the bids are encrypted during the bidding period and then decrypted at the end of the bidding period. And this means that everyone in the auction, both the biders and the auction host are blind.

They don't know what anyone else is doing until the end of the auction when everything is revealed. And for this, we're using the new Shutter API. Uh Shutter is a commit and reveal threshold encryption as a service protocol, which basically allows us to do the encryption and decryption in a decentralized way quickly and easily. And our devs are currently working on it. And you should see this on the Paddle Battle website soon.

But sealed bid auctions are actually really cool. Uh first of all, they're better than English auctions. They generally have 9% more participants and raise 166% more money. Even better, they have a really intuitive and wholesome dominant strategy, which is you just bid your perceived value. And if you win, you got a deal.

And if you didn't win, well, maybe someone else valued the item more than you did. And that's fine, too. But there are lots of other auction mechanisms we're looking to explore, including popcorn bidding, team auctions, yield auctions, and if you have ideas about auction mechanisms you'd like to test out in real life, come and talk to me and we'll implement them because it's fun. So, that was a brief overview of Paddle Battle and Impactful Auctions, which I remind you are we auction off cool and donate the money to public goods. If you're interested in participating in any one of our auctions, or you're interested in collaborating, or if you have cool to auction off, head on over to paddlebattle.

auction auction or on Twitter paddle battles. Thank you. Thank you, Loring. Um, do we have any questions from the audience? Um, I I think we have time to take one questions.

Okay, let's give a round of applause to Lorine. [Music]