A closed token auction involves bids from all participants 'blindly', that is, without knowing the conditions under which other users made their bids.
This is done to eliminate the possibility of price manipulation.
The process of counting bids, as well as the impossibility of multiple submissions and the guarantee of payment, is carried out using various tools, one of which is smart contracts.
It is worth noting that participants know nothing about each other's bids only at the moment of submission. After the auction is completed, the information becomes available.
Advantages of closed token auctions The main advantage of a closed auction is a more 'fair pricing' of the token. Participants do not see each other's bids. This compels everyone to set prices that are closest to the actual value of the asset. An undeniable advantage of closed auctions is the nullification of the advantage of using bots, which can be useful for lightning-fast actions. Considering that bids are accepted within a certain time frame, the speed of submission does not matter.
Disadvantages of closed token auctions
● The first drawback of a closed token auction is the lack of transparency in the process. Not knowing what bids other participants have made can create fear among them.
● The second drawback stems from the first — it is complexity. Many private investors will lack the desire to navigate the intricacies of a closed auction. This will lead to them not participating in the token distribution.
● The third downside — a closed auction requires quite significant financial investments. This is due to the need to implement a certain marketing program to attract investors, and the technical organization will also not be free. Thus, projects with low capitalization are unlikely to resort to this.
● The fourth downside — the risk of hacking. Smart contracts, despite their functionality, remain vulnerable to fraudsters. The technologies used for conducting closed token distribution auctions are no exception.
● The fifth downside — the risk of underfunding. Typically, any project has a plan for attracting funds. It often turns out that this plan is not fulfilled, leading to the project's failure.