toast,
I still don't understand fully about the Auction part even refering the informtion here https://github.com/nmushegian/dns/blob/master/whitepaper.md
Can you please describe the process using an example ?
Is this more clear? I updated the paper
You can kick off an auction by sending a transaction with a domain claim output if that domain has never been bid on before, or is expired. The domain remains in auction until DNS_AUCTION_BLOCKS blocks have passed since the last bid on that domain. (Note: Because the auction "timer" is reset in this way, nobody gains from being able to make faster bids and so there is a rule that there can be at most one bid per name per block.)
Every time someone makes a bid, the previous bidder is paid back his original bid plus a small fraction of the difference between the and the previous bid. This gives speculators an incentive to drive up the price and a way to profit without squatting the domain and reselling it. The rest of the difference is paid as a dividend to the network. If the person who won the domain was just a speculator who cannot make use of it, they have strong incentive to sell it back to the market at a small loss because of the opportunity cost of the lost dividends while the domain is held.
The end result is that a domain will keep re-appearing on the market while fluctuating around its "true" (market-perceived) price, until someone who actually wants to make use of that name buys it at the market price.
So an example is:
"name" has never been taken before.
A bids 10 for "name"
B bids 15 for "name". A gets 12.5, the network gets 2.5 as dividends.
C bids 17 for "name". B gets 16, the network gets 1 as dividends.
~ Nobody bids for 3 days, C won the domain ~
C puts the name back up for sale at 12.
D bids 13. C gets 12.5, the network gets 0.5 as dividends.
Here the dividend ratio is 50%, in reality it will be higher.
Thanks, clear now.
I would actually like to comment on this process some to encourage users to make larger bids rather than the minimum possible bid.
A bids 10 for "name" and pays the network 5 as dividends.
B bids 20 for "name", pays A 12.5 and the network 2.5
C bids 30 for "name", pays B 22.5 and the network 2.5
~ no body bids for 3 days, C won the domain for a total of 25
C puts the name back up for sale at 20
D bids 25 and pays it to C.
E bids 27 and pays it to D.
After the initial bidding, the network does not collect fees from the auction except from the per-byte transaction fees.
Under these rules someone can secure a name cheaper if they bid higher initially because they increase the amount they must be outbid by to lose the name. So if I attempt to do many small bids then chances are I would pay more than if I made a big bid and hope no one would be willing to raise the bar by 2x what I did. If they do then I profit dramatically. This means that the person who wants to actually own the name is motivated to bid their highest possible bid on the first go so that they might get the domain as cheaply as possible.