Dutch Auction Price Decay

Dutch auction price decay refers to the mechanism where the price of an asset in an auction starts high and gradually decreases over time until a buyer is found. This is particularly useful in crypto liquidations because it ensures the collateral is sold at a market-clearing price without requiring an order book.

The rate of decay is a key parameter that can be tuned to balance the speed of the sale with the price achieved. A faster decay ensures quicker liquidation but may result in lower proceeds.

A slower decay maximizes potential revenue but risks market conditions worsening during the auction. This design is central to many DeFi lending platforms.