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ArNS: Understanding the Auction Process
The Arweave Name System (ArNS) employs a Bid Initiated Dutch Auction (BIDA) process for the purchase of premium ArNS names.
Bid Initiated Dutch Auctions
Dutch auctions may be familiar to tulip wholesalers, but not for the rest of us. In English auctions, the price starts low and gradually increases as bidders scramble to out-bid each other. Dutch auctions work in reverse:
The auction begins with an initial bid that must be greater than or equal to the assigned floor price for the ArNS name
Once that first bid is placed, the auction begins with a ceiling price set several times higher than the first bid
That ceiling price may seem high but falls gradually over a two block-week period
Anyone can hop in and purchase the name at any point during those two weeks. If they do, the ArNS name is theirs to keep.
If no one else bids and auction concludes, the initial bidder obtains the name at their original bidding price
No bidding wars
There are no bidding wars with Dutch Auctions, as they accommodate only two bids: the initial bid and the final bid. If you see a name you like at a good price - go for it. The name is yours with no further bidding allowed. Or take your chances and wait for the price to drop. But watch out: if anyone else scoops it up first, it's gone.
Which names are auctioned?
Names are auctioned based on character length and transaction type. Longer, leased names are purchased instantly. Shorter, permanent names are auctioned.
Example
Imagine you're interested in acquiring a premium ArNS domain name like permanent. This name is 9 characters long so it falls in the 5-12 character category, giving it the option to be leased for 1-5 years or bought permanently on auction. You want permanent permanently, so you go for an auction. Here's how it would unfold:
Auction Initiation:
You want the ArNS name permanent permanently
Action: Since it is a permanent purchase, the ArNS name will be auctioned. You place the first bid, which must be at or above the floor price of 1,000 IO Tokens set for the name.
Auction Dynamics:
Start Price: The auction begins at a very high ceiling price, let’s say 50,000 IO Tokens.
Price Decay: Every 2-3 minutes, the price of permanent decreases from this high starting point until it reaches the initial bid price in about two weeks.
Your Strategy:
Wait or Bid: You can choose to wait as the price falls, hoping no one else bids, or bid at a price you're comfortable with before it hits the floor price.
Possible Scenarios:
Scenario 1: You wait, and no one else bids. The price reaches the floor, and you acquire permanent at the initial bid price. Sweet deal!
Scenario 2: Another interested person steps in and purchases it before it reaches the floor price. Gone forever!
Scenario 3: You don’t want another bidder to get it, so you make a second bid to purchase the name before it reaches the floor price.
Auction Closure:
Duration: The auction lasts for a maximum of two block-weeks. That’s around two calendar weeks, but can be a few hours different due to the variable duration of Arweave block production.
End Result: Either the initial bid or a second bid during the declining price curve will win the auction.
The reverse eBay
Think of Bid Initiated Dutch Auctions like a reverse eBay auction for a highly sought-after collectible. The collectible (in this case, permanent) starts at a high price. Over a two week period, this price systematically decreases. At any time, interested buyers can claim the item at the current price - the equivalent of a "Buy It Now" button on eBay.
Because the price starts high, it makes sense to wait to bid. But if you wait too long, someone else might snatch it up.
If the full two weeks expires without any other bids, the name goes to the first bidder at the lowest possible price.
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