The leading project in the privacy track, Zama, has finally launched its token auction. This time, they adopted an "Sealed Bid Dutch Auction" mechanism, which is quite interesting. It took some time to fully understand the entire logic, so I’m sharing it with everyone.

**Project Fundamentals**

Zama is a leader in privacy protocols. Last year, it completed $130 million in funding, with a total token supply of 11 billion. The auction is divided into two phases: the OG round (January 16 - February 2), which will release 2% of the total supply, and the Public round (January 21 - January 24), which will release 8%. Interestingly, even without OG NFTs, it’s entirely possible to participate in the public round at very low prices.

**Core of the Auction Mechanism: Dutch Auction**

When it comes to Dutch auctions, it overturns the common bidding logic. Traditional auctions bid from low to high, with the highest bid winning. But a Dutch auction works the other way — the price starts high and gradually decreases until a buyer bids, at which point the auction ends. The clever part is that all successful bidders pay the same "clearing price," rather than their individual bid prices.

**Sealed Bid Layer**

Here, "sealed" means your bid quantity is kept confidential, but your bid price is public. For example:

Suppose the starting price is 0.05. Buyer A bids 0.05 for 100,000 tokens (quantity kept confidential), Buyer B bids 0.04 for 50,000 tokens, Buyer C bids 0.03 for 200,000 tokens, and so on. Later, Buyer D bids 0.02, Buyer E bids 0.01.

When the auction ends, the system allocates from high to low prices. If, at the point of allocating to Buyer D, exactly 8% of the tokens are sold out, then 0.02 becomes the final clearing price. Bidders who bid higher than 0.02 (like Buyer A, B, C) will pay the clearing price but receive a refund for the difference between their bid and the clearing price. That is, Buyer A bid 0.05 but ends up paying 0.02, and the 0.03 difference is refunded.

**Final Outcome**

All bidders who participated and bid high enough will purchase their allocated amount of Zama tokens at the uniform clearing price of 0.02.

**Why is this mechanism so fair?**

First, prices won’t be driven up endlessly — although higher bids have priority, everyone ultimately pays the clearing price. Second, the auction will definitely sell out — there will always be bidders willing to accept a lower price. Third, bidding higher is advantageous, but the portion above the clearing price isn’t actually spent. Lastly, bidding too low carries the risk of losing the auction.

Zama implements this mechanism using FHE privacy technology, which is truly innovative. After the auction opens, savvy participants can refer to prediction markets and pre-auction price signals to make more rational bidding decisions. In theory, everyone will try to fill the public sale quota at the lowest possible price.

**Participation Details**

Token distribution and TGE (Token Generation Event) are scheduled for February 2. Participation can be done through official channels, currently supporting only USDT payments on the Ethereum mainnet.