Initial Fraction Offering
Live Initial Fraction Offering (IFO) is a unique way to offer artworks to LiveArt investors, while protecting the artwork.
Initial Fraction Offering (IFO)
Initial Fraction Offering refers to the primary public offering of fractionalized physical artwork. During this process, the artwork ownership is fractionalized. Typically between 200 to 1000 pieces. Each fraction is an NFT representing a share of the ownership of the underlying asset. These fractions have governance rights over the underlying asset and are eligible at pro rata for a share of the proceeds when the artwork is sold.
Lifecycle of a Fractionalized Offering
The public can acquire RWA fraction in Initial Fraction Offering through a public Auction in 2 phases:
Phase 1 - Hidden Artwork
When an artwork is sourced, a guarantee might be requested by the collector. In such cases, auction houses typically front that guarantee before announcing the sale.
The Liveart decentralized auction protocol reproduces this by using a “hidden artwork” phase as part of artwork Initial Fraction Offering.
Bidding in the early stage of the auction offers the following advantages:
Early Bid Multiplier: Each bid before the reveal price is applied a (eg. bid $100 -> bid value of $130)
$ART Rewards: x% of the $ART reward allocation is dedicated to rewarding early bidders. See $ART
Safety: If the auction doesn’t reach the guarantee price, the bid are refunded
Cherry pick: If the auction is successful, the early bidder will be able to select the fraction they want to receive, while the late bidder will receive a fraction at random
Phase 2 - Reveled Artwork
Once cumulated bids value reaches the reserve price (aka. guarantee), the artwork is revealed to the public. At this point, bidding continues until the auction reaches its end time.
After the auction is closed, the winning bidders will receive a randomized allocation of the fractions based on the ending clearing price, as well as a refund for the difference between their initial bid and their total allocation value. Losing bids are fully refunded.
Auction Clearing Price and Auction Mechanics
Auction mechanics are essential for proper price discovery in a primary offering context. LiveArt IFO auctions utilize a proprietary auction mechanism that allows efficient Fair Market Value discovery by maximizing allocation as well total market capitalization of the collection. The auction works as follows:
A minimum bid price is set and auction opens
Bidders submit bids
A clearing price is constantly based on demand
At the end of the auction, all bids above receive an allocation
Example:
Clearing price reaches 1.2ETH per fraction
Person A bids 3ETH
Auction ends, person A will receive 2 random fractions and 0.6ETH of refunds. (2x 1.2ETH + 0.6ETH = 3ETH)
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