In a Dutch auction, the price of an item is first set at its greatest asking price and then gradually dropped until a winning bid is made and the item is sold. A bid reserves that many tokens in a token auction, which concludes when every token has been sold. The lowest bid is then paid by all participants at the same amount.

For instance, a brand-new cryptocurrency may use a Dutch auction to sell its coin and set its price. The coin auction does not always come to a conclusion when John Doe makes a comparatively high offer. Instead, the auction goes on and the currency's bidding price drops as long as there is still a supply of coin available. The quantity of coin that John Doe will receive increases with each decline in the price of coins, but his bid will stay the same. John Doe will get 20 coins if he bids $100 at the $5 asking price. He would get 25 coins if the price decreases to $4. This keeps going until every coin is purchased, establishing the clearing price.

Recall that there are other bidders than John Doe, and the coin he would obtain would only deduct a small percentage of the total quantity. The auction ends when the supply is exhausted at a specific price, at which point each bidder receives coin in proportion to their quantity. This process continues as additional people participate in the auction.

The cryptocurrency industry uses Dutch Auctions because they provide a democratic and decentralized method of setting a company's coin's price. Through a progressive price reduction strategy, corporations are able to determine the maximum amount that each bidder is prepared to spend. The Dutch Auction method stands in stark contrast to typical initial public offerings (IPOs), where investors and bidders are members of an elite, institutionalized club (investment banks) that set the price. Smaller party investors can participate in the bidding process and influence the final price through Dutch auctions.