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Altair’s Winning Parachain Bid: Making Sense of the Kusama Parachain Candle Auctions

Published date: October 5 2021

May the VRF odds be forever in your favor

From giphy

First of all — a huge THANK YOU to the entire Altair community for your support in the Altair crowdloan! Altair won the 9th parachain slot auction in the most dramatic fashion — so we wanted to lay out the details for you on how that happened!

How does the Kusama Candle Auction Work?

Candle auctions are a variant of open auctions that were originally employed in 16th century for the sale of ships and get their name from the “inch of a candle” that determined the open period of the auction. When the flame extinguished and the candle went out, the auction would suddenly terminate and the standing bid at that point would win.

Parachain slot auctions follow a modified candle auction format, with each auction lasting approximately 1 week. To prevent auction sniping (the strategy of bidding at the last moment) and promote more accurate price discovery, the exact endpoint of a particular auction remains unknown until after the auction’s close. Kusama parachain slot auctions have a known open phase of 1 day and 21 hours, and at the normal close of the bidding period (1 week) it will be retroactively determined to have ended at some point in the past during the ending phase of 5 days.

Kusama’s modified candle auction format

So during the ending phase, bids will continue to be accepted, but later bids have higher probability of losing since the retroactively determined close moment may be found to have preceded the time that a bid was submitted.

Why all this complexity?

Fair auctions are hard. Especially when you involve blockchains. How blockchains execute their code is generally public and can be seen and predicted by everyone. This means automated bidding by a onchain logic (i.e. a smart contract) can’t be private and thus its strategy would always be at a disadvantage to an off chain entity doing bidding as they could look at all the automated bidding and find a way to exploit it. Ultimately the goal for parachains is that they can bid for their own slots so the auction mechanism wants to incentivize participants to give their highest bid as soon as possible but still allow some price discovery.

The VRF: deciding when the candle goes out

The auction’s end point can be any time within the ending period. The end point needs to be uniformly random over the ending phase (i.e. the likelihood of any block in the period chosen is the same). It also needs to be impossible to manipulate. Kusama has a built in Verifiable Random Function (VRF). It is a cryptographic function that produces this randomness that is then used to automatically choose the ending block at the close of the 1-week bidding period.

The Endpoint of Auction #9

Altair was leading the bids for auction 9 for 35% of the ending period. That means that Altair had a 35% probability of winning the candle auction.

In the end, the retroactively determined ending time for auction #9 on Kusama by the VRF was September 25th at 19:16:48 UTC. So in other words, that’s when the candle blew out. At this block — Altair was the highest bidder!


What’s Next?

We will be sharing more details in the next days on the detailed launch process, timeline, and what to expect from Altair (and for future AIR token holders!) so make sure to stay tuned to our channels for updates.

Altair’s Winning Parachain Bid: Making Sense of the Kusama Parachain Candle Auctions was originally published in Altair Network on Medium, where people are continuing the conversation by highlighting and responding to this story.