Dutch auction Price discovery protocol on Reitcircles

[GENERAL] Name and surname of main applicant

Nilay Saha

[GENERAL] Are you delivering this project as an individual or as an entity (whether formally incorporated or not)

Entity (Incorporated)

[GENERAL] Co-proposers and additional applicants

Vinh Tuan

Tri Giang

AnSy

[GENERAL] Please specify how many months you expect your project to last (from 2-12 months)

9

[GENERAL] Please indicate if your proposal has been auto-translated into English from another language

No

[GENERAL] Summarize your solution to the problem (200-character limit including spaces)

We will design and implement an open source Dutch auction protocol, and demonstrate its use and usefulness to the community by integrating it with our fractionalized real estate platform.

[GENERAL] Does your project have any dependencies on other organizations, technical or otherwise?

Yes

[GENERAL] If YES, please describe what the dependency is and why you believe it is essential for your project’s delivery. If NO, please write “No dependencies.”

Ikigai Technologies executing the Dutch auction contract module which will be integrated into Reitcircles platform.

[GENERAL] Will your project’s output/s be fully open source?

Yes

[GENERAL] Please provide here more information on the open source status of your project outputs

We will open source the on-chain and offchain source code directly related to the on-chain activity.

[METADATA] Horizons

DeFi

[SOLUTION] Please describe your proposed solution

Using Dutch auctions for price discovery in fractionalized real estate is an innovative method to set a fair market price for property shares, allowing potential investors to determine the value of the property by bidding on fractions of it. This method offers a dynamic way to allocate fractional real estate tokens, ensuring a market-driven price for each fraction rather than a predetermined one.

Here’s how it works and its benefits:

Dutch Auction Basics

A Dutch auction is a type of auction where the price starts high and decreases incrementally over time until a buyer (or buyers) are willing to accept the current price. The auction stops when all available units (in this case, fractionalized real estate tokens) are sold, or when the minimum price threshold is met.

• The auctioneer (in this case, the platform or property owner) sets an initial high price for each fraction of the real estate.
• Over time, the price gradually decreases at predefined intervals.
• Investors watch the auction, and when the price reaches a level they are willing to pay, they can purchase their desired number of fractional tokens.
• The auction ends when all tokens are sold, or a pre-set auction end time is reached.

Application in Fractionalized Real Estate

In the context of fractionalized real estate, the property is tokenized into fractional shares, and each token represents a portion of ownership in the property. The Dutch auction model can be applied to price discovery in this way:

1. Tokenization of Real Estate: The real estate property is divided into fractions, each represented by a token on a blockchain. These tokens can represent a percentage of ownership in the property (e.g., 1% or 0.1% per token).
2. Setting Auction Parameters:

• A high initial price is set for each token to account for market interest.
• The price decreases at fixed intervals (e.g., every minute, hour, or day) over a predetermined auction period.
• Investors observe the auction and place bids when they feel the token price reflects the fair value of the fractional real estate.

1. Investors Make Bids:

• As the price decreases, investors compete to buy the tokens at a price they are comfortable with. If they believe the price is reasonable at a certain point, they can buy the tokens at that moment.
• Multiple buyers can purchase tokens at different prices based on when they decide to buy.

1. Auction Ends:

• The auction continues until all tokens are sold or until the auction period ends, with the remaining tokens sold at the final price if demand is lower than expected.
• This process leads to price discovery, as the final token price is determined by market demand rather than a fixed valuation by the property owner.

Advantages of Using Dutch Auctions for Fractionalized Real Estate

• Market-Driven Price Discovery:
• Unlike fixed-price sales where the property owner or platform determines the price of each token, a Dutch auction allows the market to determine the fair price. This ensures that the final price reflects the actual demand for fractional ownership of the property.
• Avoiding Undervaluation or Overvaluation:
• Fixed pricing can either overvalue or undervalue the real estate tokens, which may lead to inefficiencies. Dutch auctions help eliminate this issue by adjusting the price dynamically based on investor interest, reducing the risk of mispricing.
• Encourages Early Participation:
• Since the price starts high and decreases over time, investors who believe in the long-term value of the real estate may buy tokens early at a higher price to secure ownership. This helps the property owner capture higher initial bids.
• Transparency and Fairness:
• Dutch auctions are transparent because every potential investor sees the same price and has the opportunity to bid. It reduces insider advantages, as no one knows when the price will hit the level of maximum interest.
• Dynamic Supply and Demand Matching:
• Investors willing to wait for a lower price can do so, but they also risk the tokens being sold to someone else before the price drops further. This mechanism helps balance supply and demand more efficiently.
• Liquidity and Flexibility:
• Dutch auctions provide flexibility to adjust the pace of the price reduction based on market conditions. If demand is strong, tokens may be sold quickly at higher prices, while slower demand will push prices down until they reach a market-clearing level.
• The flexibility in pricing also increases the liquidity of fractional real estate assets, as more participants can buy at various price points.
• No Need for an Extensive Valuation Process:
• Traditional real estate markets require extensive property valuations. Using Dutch auctions, the valuation process can be crowdsourced, allowing the collective market sentiment to set the price, which might be quicker and more accurate for some types of properties.

Example of Dutch Auction for Fractional Real Estate

Imagine a property worth $1 million is divided into 1,000 tokens. The platform sets the initial price at $2,000 per token.

• The auction starts with a price of $2,000 per token, and no investor is willing to buy at that price.
• Every 30 minutes, the price decreases by $100.
• After 2 hours, the price reaches $1,800 per token. A few investors find this price attractive and start buying some tokens.
• As the price continues to decrease, more buyers enter the auction. At $1,600 per token, there is more demand, and most tokens are sold.
• The final tokens are sold at $1,500 each, completing the auction.

The average price per token (based on all purchases) reflects the fair market value of the fractionalized property as determined by investor demand during the auction.

Challenges of Dutch Auctions for Fractional Real Estate

While Dutch auctions provide numerous benefits, there are some challenges to consider:

• Risk of Price Manipulation: In smaller markets, there could be an attempt to manipulate prices by delaying bids or buying at lower prices. Proper monitoring and transparency are essential to mitigate this.
• Investor Patience: Some investors may prefer a fixed price rather than waiting for the Dutch auction to reduce prices, especially if the auction takes time.
• Regulatory Concerns: Depending on jurisdiction, the tokenized real estate may be considered a security, requiring compliance with financial regulations.

Conclusion

Dutch auctions offer a unique and market-driven way to conduct price discovery for fractionalized real estate assets. By allowing prices to dynamically adjust based on demand, this method helps determine the true market value of each fractional token while giving investors flexibility and transparency. For property owners, it ensures that they capture a fair value for their assets, avoiding the pitfalls of mispricing or undervaluation common in traditional fixed-price models.

[IMPACT] Please define the positive impact your project will have on the wider Cardano community

Introducing Dutch auctions to price fractionalized real estate can have several positive impacts on the community, especially in fostering more inclusive and efficient real estate markets. Here are some key ways in which a Dutch auction model can benefit the broader community:

1. Improved Access to Real Estate Markets

• Lower Barriers to Entry: Fractionalized real estate allows individuals to own small portions of high-value properties, which may otherwise be out of reach for many investors. Dutch auctions offer a transparent and flexible pricing mechanism, making it easier for a broader range of participants to enter the real estate market at price points they find fair.
• Financial Inclusion: Communities that traditionally have less access to real estate investment opportunities, due to high costs or institutional barriers, can now participate in property ownership through affordable fractional investments. This increases economic participation and fosters wealth generation across diverse demographic groups.

2. Market-Driven Fair Pricing

• Fairer Valuation: The Dutch auction mechanism allows for real-time price discovery, meaning the property’s fractional shares will be sold at prices that the community collectively determines to be fair. This avoids the pitfalls of overpricing or underpricing properties, which can sometimes occur with fixed-price models set by a few decision-makers.
• Avoiding Speculation and Market Manipulation: Dutch auctions reduce the risk of speculative pricing since the price decreases over time. Investors who genuinely believe in the long-term value of the property will be more likely to purchase tokens early on, while those seeking speculative gains may be deterred from waiting for prices to drop drastically.

3. Greater Community Participation and Transparency

• Transparency: The Dutch auction process is fully transparent, allowing all participants to observe price movements and make decisions based on the same information. This transparency builds trust within the community, as people see that the pricing mechanism is not manipulated by insiders or market makers.
• Democratized Ownership: Communities can benefit from a more democratic form of property ownership, where fractionalized real estate tokens are distributed across many smaller investors rather than being controlled by a few wealthy entities. This fosters a sense of collective ownership and shared benefits from real estate assets in the local community.

4. Enhanced Liquidity in the Real Estate Market

• More Liquid Investments: Fractionalized real estate, when combined with Dutch auctions, provides increased liquidity compared to traditional real estate investments. Investors can buy fractions of properties that are easier to trade on secondary markets, allowing them to enter and exit investments more easily. This creates a more dynamic and flexible market, benefitting individuals who want to adjust their portfolios according to their financial needs.
• Continuous Price Discovery: The auction-driven price discovery process enables a more accurate reflection of the current market demand for property fractions. This ensures liquidity for buyers and sellers, as price adjustments during the auction attract participants at various price points, leading to faster transactions.

5. More Equitable Wealth Distribution

• Decentralized Wealth Creation: By enabling more people to invest in fractionalized real estate, Dutch auctions help distribute wealth more equitably within the community. Property ownership has historically been a key driver of wealth accumulation, and making this process more accessible to a wider audience can reduce wealth inequality.
• Community Wealth Building: Individuals within a community can pool resources to purchase fractionalized shares of local real estate properties, ensuring that wealth generated from property appreciation or rental income stays within the community. This is particularly impactful in communities where real estate development often benefits outside investors rather than local residents.

6. Reduced Risk of Overpricing

• Protection Against Overpaying: In a traditional fixed-price model, some buyers might overpay for assets, especially in high-demand real estate markets. The Dutch auction’s price reduction mechanism prevents this by allowing prices to gradually decline to a level the market deems appropriate. Buyers have a chance to enter at different price points, depending on their risk appetite and willingness to pay.
• No Need for Immediate High Capital: Because the price decreases over time, community members with lower capital can wait for more affordable price points rather than being priced out early on. This provides opportunities for a broader range of investors to participate without needing substantial upfront capital.

7. Stability and Confidence in the Market

• Better Market Stability: Since the Dutch auction helps balance supply and demand, it reduces volatility in pricing and prevents artificial price inflation or deflation, which can lead to market crashes or bubbles. This leads to a more stable real estate market where prices are reflective of genuine investor interest.
• Increased Confidence in Property Valuation: Communities are more likely to trust and invest in a real estate platform that uses Dutch auctions because they can see the market-driven pricing in real-time. This transparency builds confidence in the system and promotes long-term investment rather than short-term speculation.

8. Encouraging Long-Term Investment

• Incentivizing Long-Term Value: Since Dutch auctions encourage early bids at higher prices, participants who value the property for its long-term appreciation or rental income potential are more likely to engage in the auction. This contrasts with speculative investors who often dominate fixed-price sales with the goal of flipping properties for quick profits. By attracting long-term investors, Dutch auctions contribute to the development of more sustainable real estate markets.

9. Community-Led Development

• Funding Local Projects: Communities can use fractionalized real estate platforms to raise funds for local development projects. By allowing community members to invest in fractional ownership of new or existing developments, Dutch auctions can serve as a funding mechanism for projects that benefit the local area, such as affordable housing, commercial spaces, or community centers.
• Ownership of Local Assets: Residents of a community can use Dutch auctions to collectively own significant local real estate assets, keeping the ownership within the community rather than letting it fall into the hands of large corporate entities or foreign investors.

10. Broader Financial Education

• Increased Financial Literacy: The process of participating in Dutch auctions for fractionalized real estate requires investors to understand how pricing mechanisms work, how real estate markets function, and how to evaluate potential risks and rewards. This exposure helps build financial literacy within the community, empowering individuals to make more informed investment decisions in the future.
• Access to New Investment Models: Communities that have had limited exposure to innovative financial tools can benefit from learning about the advantages of fractional ownership, blockchain technology, and market-driven pricing models like Dutch auctions.

Conclusion

By introducing Dutch auctions to price fractionalized real estate, the community gains numerous benefits, including improved market access, fair pricing, greater liquidity, and equitable wealth distribution. This model fosters inclusivity, transparency, and long-term stability in real estate investment, enabling more individuals to participate in property ownership and helping local communities retain value within their borders. The Dutch auction mechanism provides a fairer and more efficient system for price discovery, ultimately empowering the broader community and promoting sustainable real estate development.

[CAPABILITY & FEASIBILITY] What is your capability to deliver your project with high levels of trust and accountability? How do you intend to validate if your approach is feasible?

Reitcircles has achieved the following milestones already:

• A working portal with wallet based login
• An onboarding module with document upload and review
• Payment module for taking NFT payments and minting the same.
• House NFT creation based on documents and smart contract based verification.
• Portal based chat communication between members of the platform.
• Role NFT based access to the platform.
• Smart contract based REIT token issuance replicating BTC (with halving every 4 years)
• Multiple reviewer based validations of the asset data before tokenization
• Ability to add multiple reviewer per project/asset.
• Fractionalization module

Our team brings in more than 40+ yrs of software development experience.

• Antonio Hernandez-Garduno: Platform lead in Smart contract development who is a PhD graduate from Caltech, leading security solutions.
• Tony Mönicke: Computer science graduate based in Berlin and working in cardano ecosystem for last 2+ years.
• Nilay Saha: Worked in leading multinational companies such as ASML, AUDI, Hilti and extensive experience in banking. Has 25+ years of development, solutions architecture and technical leadership experience in large/mid size industry.
• An Sy, Vinh tuan: Developers working on the platform (frontend and backend)
• Giang Nguyen: UI/UX lead

We will be delivering using open source code, where commits can be monitored. And to give a proof of concept / working version, we will integrate the same into our verification platform that is already live on mainnet.

The Grabbit team has been building on Cardano for years, including developing the most complex English auction protocol on Cardano and assisted/authored on several CIPs They’ve already started on a design document for a Dutch auction system.

[PROJECT MILESTONES] What are the key milestones you need to achieve in order to complete your project successfully?

Planning & Requirements Gathering

Define Business Scope and Objectives

• Project charter outlining goals, target audience, and project scope.
• Use case documentation for tokenization and auction scenarios.
• Initial risk assessment and mitigation plan.

Legal and Regulatory Assessment

• Compliance report detailing legal requirements for real estate tokenization and auctions in relevant jurisdictions.
• Regulatory and legal checklist for blockchain, tokenization, and auction operations.
• Engagement of legal counsel (if necessary).

Timeline:

• Duration: 4 weeks
• FTE: 1

Milestone costs

• 7K USD

System Architecture and Technology Stack Finalization

• System architecture diagram including blockchain integration, auction engine, and payment gateway.
• Technology stack document specifying blockchain auction engine, frontend, and backend tools.
• Integration plan with third-party services (e.g., payment gateways, KYC/AML providers).
• Functional specification document 
• Detailed description of auction features: bidding process, reserve prices, and participant tracking.
• Documentation for backend features like time-based bidding and auction closeout procedures.

Timeline:

• Duration: 6 weeks
• FTE: 1

Milestone costs

• 10K USD

Platform Design 

 UX/UI Design for integrating Auction and Tokenization Portal

• Wireframes for integrating tokenization portal and auction platform.
• User experience flowcharts for auction participation and token purchasing.
• High-fidelity mockups for key screens (e.g., property listing, auction dashboard, bidding interfaces).

Timeline:

• Duration: 3 weeks
• 1 FTE

Milestone costs

• 5K USD

Development + unit testing

 Blockchain and Smart Contract Integration

• Code repository for smart contracts (GitHub or equivalent).
• Token contract testing results (testnet deployment and verification).

Backend Development for Auction Platform

• Fully functional auction engine (test environment), supporting bidding, real-time updates, and auction closeout.
• API documentation for auction functionalities (bidding, updates, status tracking).
• Data flow documentation for tokenized assets during auctions (how token ownership is transferred).

Frontend Development for Auction & Tokenization

• Deliverables:
• User interface for property listings, auction participation, and bidding.
• Integration of token wallet with auction platform (e.g., MetaMask or equivalent).
• Responsive web design for desktop and mobile access.
• Test cases for end-to-end integration

Timeline:

• Duration: 12 weeks
• FTE: 4  

Milestone costs

77K USD

Security, Testing, and Compliance

Security Audit and Compliance Review

• Security audit reports for smart contracts (conducted by third-party audit firm).
• Penetration test results for the auction platform and tokenization portal.
• Compliance certificates for legal/regulatory requirements (as needed).

Integration and System Testing

• Comprehensive testing documentation for unit, integration, and system tests.
• Test results and bug-fix documentation for the platform.
• Performance testing report, including metrics for transaction speed and auction handling at scale.

Timeline:

• Duration: 6 weeks
• FTE: 2

Milestone costs

• 12K USD

Deployment and Go-Live

User Acceptance Testing (UAT)

• UAT test plan and scenarios based on real-world use cases.
• Feedback reports from stakeholders and test users.
• List of final bug fixes and optimizations before go-live.

Platform Deployment

• Deployment plan for the auction platform
• Cloud or hosting setup with performance scaling configurations.
• Backup, monitoring, and failover strategy documentation.

Milestone 6: Documentation

• Marketing materials and educational content (tutorials, how-to guides for auctions and tokenization).
• Public announcement strategy for platform launch (PR, email campaigns, etc.).
• User onboarding guide and support documentation.

Timeline:

• Duration: 6 weeks
• FTE: 2 

Milestone costs

• 12K USD

[RESOURCES] Who is in the project team and what are their roles?

Reitcircles 

• Antonio Hernandez-Garduno: Platform lead in Smart contract development who is a PhD graduate from Caltech, leading security solutions.
• Nilay Saha: Worked in leading multinational companies such as ASML, AUDI, Hilti and extensive experience in banking. Has 25+ years of development, solutions architecture and technical leadership experience in large/mid size industry. Also a stake pool operator in Cardano running LKBH pool since the start of Shelley.
• Huy, Vinh, Minh: Developers working on the platform (frontend and backend)
• Giang: UI/UX lead
• Mauricio Prieto : CSO of Reitcircles Extensive experience beyond blockchain technology and LATAM Cardano DRep .
• Malay Saha: Head of marketing and CEO of Reitcircles. He has been country lead of automotive operations for Isuzu, Hyundai, Carrier Transicold, and has more than 27+ years of marketing experience and leadership.
• Advisors:
• Andrew Westberg: An active member of the Cardano community and has provided key technical advice since the beginning of the project.
• Documentation writer: Has to be hired.

Grabbit

• Sam Delaney: Cofounder & Principal Smart Contract Engineer. An active, experienced smart contract dev, with special experience in auctions and royalties.

[BUDGET & COSTS] Please provide a cost breakdown of the proposed work and resources

Total: 123K ~ 357K ADA @ 0.344$/ADA.

[VALUE FOR MONEY] How does the cost of the project represent value for money for the Cardano ecosystem?

Integrating a Dutch auction platform into a real estate tokenization project for a cost of $150,000 can represent significant value for money for the Cardano ecosystem in various ways. Here’s a breakdown of how this investment can benefit the ecosystem and provide a strong return on investment:

1. Enhanced Market Efficiency

• Improved Price Discovery: The Dutch auction mechanism enables more accurate price discovery for fractionalized real estate assets, which can lead to fairer pricing and better alignment with market demand. This efficiency can attract more investors to the Cardano ecosystem, boosting overall market activity.
• Reduction of Mispricing: By allowing prices to be determined dynamically through bidding, the risk of mispricing assets is minimized. This can enhance the credibility of real estate investments on Cardano, leading to higher investor confidence and increased transactions.

2. Attracting New Users and Investors

• Increased Participation: A well-designed auction platform can attract a broader range of participants, from casual investors to institutional buyers. By offering a unique pricing mechanism, the project can differentiate itself from competitors, drawing more users to the Cardano ecosystem.
• Global Reach: The ability to fractionalize real estate and use Dutch auctions can appeal to international investors looking for new opportunities, thus expanding Cardano's user base and enhancing its reputation as a platform for innovative financial solutions.

3. Revenue Generation Opportunities

• Transaction Fees: The integration of a Dutch auction platform can facilitate ongoing transaction fees (e.g., a percentage of sales), creating a new revenue stream for the project. This revenue can be reinvested into the Cardano ecosystem, funding further development and marketing initiatives.
• Marketplace for Tokenized Assets: The auction platform can serve as a marketplace for tokenized real estate, where transactions take place regularly, generating consistent fees that benefit the ecosystem's financial health.

4. Increased Liquidity for Real Estate Investments

• Liquidity Solutions: By allowing tokens to be bought and sold through a Dutch auction mechanism, the project can enhance the liquidity of real estate assets on Cardano. Increased liquidity can make investments more attractive, encouraging more users to engage with tokenized real estate offerings.
• Attracting Institutional Investors: Enhanced liquidity and a transparent price discovery mechanism can attract institutional investors who may have previously hesitated to enter the real estate market on Cardano due to concerns about illiquidity or pricing transparency.

5. Innovation and Competitive Advantage

• Differentiation in the Market: The integration of a Dutch auction platform provides a competitive edge, setting the Cardano ecosystem apart from other blockchain platforms that may not offer similar features. This innovation can help Cardano position itself as a leader in the emerging market of tokenized real estate.
• Showcase of Technology: Implementing such an advanced auction system showcases Cardano's capabilities in handling complex smart contract functionality, demonstrating the platform’s robustness and attracting developers and projects looking to utilize Cardano for their own applications.

6. Promotion of Decentralized Finance (DeFi)

• Supporting DeFi Growth: The Dutch auction platform can enhance the DeFi ecosystem on Cardano by providing users with more ways to invest, trade, and manage assets. This can encourage the development of additional DeFi applications, expanding the ecosystem’s overall functionality and user engagement.
• Education and Awareness: By introducing innovative auction mechanisms, the project can also serve as an educational tool for users new to decentralized finance and blockchain technology, promoting greater understanding and adoption of Cardano's ecosystem.

7. Community and Network Effects

• Building Community Trust: A successful Dutch auction platform can build trust within the community as users see fair, transparent processes in action. This can lead to increased user retention and attract new users, ultimately benefiting the entire Cardano network.
• Collaboration with Local Communities: The project can foster collaboration with local communities and stakeholders, promoting local real estate development and providing opportunities for community investment. This can enhance Cardano’s reputation as a socially responsible blockchain.

8. Potential for Future Expansion

• Scalability of the Platform: The auction platform can be designed to be scalable, allowing for the integration of other asset types or financial instruments in the future. This can position Cardano to capitalize on emerging trends in real estate, investment, and asset management.
• Integration with Other Ecosystem Projects: The Dutch auction mechanism can be integrated with other projects on Cardano, enhancing interoperability and fostering a richer ecosystem of applications, which can attract more developers and projects to the platform.

Conclusion

The $150,000 investment in integrating a Dutch auction platform into a real estate tokenization project can yield substantial value for the Cardano ecosystem. By enhancing market efficiency, attracting new users, generating revenue, increasing liquidity, promoting innovation, and supporting community engagement, this investment aligns well with Cardano's goals of fostering a robust and sustainable blockchain ecosystem. The potential for future expansion and integration further strengthens the case for this investment, positioning Cardano as a leader in the rapidly evolving field of tokenized real estate and decentralized finance.