Handshake auction

About Handshake's name auctions

Vickrey-style auction

Handshake auctions are Vickrey-style auctions, which is a type of sealed-bid auction. Bidders submit their bids without knowing the bid of the other people in the auction, and the highest bidder wins but the price paid is the second-highest bid! So the bid you place is the maximum you’ll pay if you win the auction, though in practice you’ll pay less than your bid because it's a second price Vickrey auction.

For example, if you bid 1000 HNS for nakamoto/ and someone else bids 500 HNS, you’d win the auction and only pay 500 HNS for nakamoto/.

How does the auction work?

You can place a bid with Handshake coins (HNS) anytime after a top-level domain is released — Handshake names are released each week according to their hash for one year after launch to impede early adopters from buying up all the "best names".

Bids can take on any value and you can optionally add a blind to your bid to hide the true value of your bid from others. Your bid + blind is called your lockup, which is the only value that other bidders see. Your HNS lockup will be non transferable for the duration of the auction, but the blind will be returned to you regardless of whether you win the auction. 

After the first bid, bidding is open to everyone for 720 blocks. After the bidding period ends, the reveal period begins. Everyone will have 1440 blocks to reveal their bid price and your blind is immediately returned to you once your bid is revealed. If you forget to reveal your lockup, then it will be lost forever and your bid will not be counted. However, Namebase does the revealing automatically for you so if you’re a Namebase user you won’t need to worry about this step.

The winning bid is chosen at the end of the 1440 blocks reveal period and the winner pays the second highest bid amount while the other bidders get their entire lockup back. Note the winner’s payment is burned by the network, so the winner doesn’t pay bids to anyone per se. This creates a deflationary effect on the network.

The winner gets to use their Handshake top-level domain however they wish (Namebase helps you manage its settings without being a programmer) and the rest of the bidders can continue trying their luck on other top-level domains.

What's a lockup?

Your lockup is the sum of your bid amount and your blind amount; lockup amount = bid amount + added blind. It's called a "lockup" because you won't be able to use the locked up funds until the end of the auction.

It's important to note that only bid amounts determine the auctions' winners — the blinds are completely optional. However, blinds are helpful because you can use them to hide your bid amount (only you can see your bid amount while the lockup amount is what's shown to other bidders), and you get it back right at the end of the bidding period; compare that to the bid amount that you receive only at the end of the reveal period.

Most importantly, the amount you actually bid can’t be updated after you submit it. You can submit additional bids but your previous bid will still be locked up (e.g. if you submit two bids of 1000 HNS and 10,000 HNS, 11,000 HNS will be locked up for the duration of the auction).

What happens when you win/lose?

If you lose, your funds are returned in full (minus the Handshake Mining Fee) after the reveal period ends. If you win, congrats! You're now one of the first owners of decentralized top-level domains on the internet. Companies regularly pay more than $200k to register top-level domains with the ICANN, so it's pretty cool that you own your personal top-level domain. The difference between your bid and the 2nd highest bid will be refunded to you as well.

What happens if there's a tie?

If it looks like you tied with someone else, but they won, there are two possibilities

  1. You may have actually been outbid by a tiny amount. Go to the auction page on a computer (not on mobile) and mouseover the bid amounts to show more decimals. Namebase shows 2 decimals by default, so if you bid 1HNS, and someone else bid 1.0001, they will win, but your bids will look identical unless you mouseover the lockup.

  2. If you and the person who won really did bid exactly the same amount, though, (you can verify further by going to shakescan.com, searching for the name in question, and looking at the bids that had the same amount as yours) it’s near random who will win. Specifically, in the case of a tie, whoever’s reveal transaction comes first wins. Namebase reveals all of the true bid amounts at basically the same time, so in most situations, they will all be in exactly the same block. However, miners get to choose the order of transactions within each block, and there are multiple distinct mining software packages for HNS; the upshot of this is that which one appears first is effectively random. Complicating things slightly more, if you as a Namebase user tie with someone who bid not using Namebase, they might reveal significantly before or after Namebase reveals (currently, Namebase reveals after 20 blocks) which would also affect who’s tied transaction is ordered first.

Finally if you want to avoid ties, many of them are just caused by humans preferring round numbers. If you always bid 1.xx instead of 1, you will probably win much more of the time, and tie less frequently.

Case Studies

Check your understanding of the name auction process by seeing if you can answer:

  1. Which bidder won?

  2. How much HNS did the winner burn?

  3. How much HNS will the winner receive back?

Case Study 1

Bidder

Lockup

Bid Amount

Added Blind

A

1,000 HNS

1,000 HNS

0 HNS

B

1,000 HNS

100 HNS

900 HNS

C

1,000 HNS

10 HNS

990 HNS

Case Study 2

Bidder

Lockup

Bid Amount

Added Blind

A

1,100 HNS

100 HNS

1,000 HNS

B

650 HNS

150 HNS

500 HNS

C

2,050 HNS

50 HNS

2,000 HNS

Case Study 3

Bidder

Lockup

Bid Amount

Added Blind

A

1,000 HNS

1,000 HNS

0 HNS

B

10,000 HNS

1,000 HNS

9,000 HNS

C

100,000 HNS

1,000 HNS

99,000 HNS

Answers

Case Study 1

  1. Bidder A won because they had the highest bid amount at 1,000 HNS

  2. Bidder A burned 100 HNS because the second highest bid was 100 HNS

  3. Bidder A receives a 900 HNS rebate because they only burned 100 HNS of their 1,000 HNS bid

Case Study 2

  1. Bidder B won because they had the highest bid amount at 150 HNS

  2. Bidder B burned 100 HNS because the second highest bid was 100 HNS

  3. Bidder B receives a 50 HNS rebate because they only burned 100 HNS of their 150 HNS bid; they'll also receive their entire added blind as does everyone else

Case Study 3

  1. The winner here is a bit difficult to determine because all 3 bidders tied with identical bid amounts of 1,000 HNS. The winner of a name auction with identical winning bid amounts is determined by whichever bidder reveals their bid amount first. However if all 3 bidders are Namebase users, then the winner is pretty much random.

  2. The winner burned 1,000 HNS because the second highest bid was also 1,000 HNS

  3. The winner receives no bid rebate because they've burned their entire 1,000 HNS bid; they'll still receive their entire added blind as does everyone else

Takeaways

Lockups are irrelevant in deciding which bidder actually wins — the only value that matters in deciding the winner is the bid amount. All other bidders will only be able to see your lockup so the added blind can be useful in hiding your actual bid amount, and plus you get your added blinds back right when the name auction ends (compare that to your bid amounts that are only returned after the entire 1440 block reveal period). And try your best to avoid placing identical bid amounts as others.