I would like to see more thinking done on the price of rent. I know there are other posts, but this is the most current and it relates to the rest of my post. In the traditional DNS system, the $10 price is derived from the open market where companies selling that service have concluded they can do that work for $10 when considering operating costs and profits. If someone could do it for less, everyone would be using that service. It’s $10 because that’s what it costs to upkeep the system. (Disclaimer, I don’t know much about ICANN, DNS, or how that whole system works.) With Ethereum and ENS I’d imagine those costs of running the system are a lot less, and that much of those costs actually translate into the gas paid in your transaction. The rent paid for an ENS name really should be less than that of a DNS name. I also think that with less adoption of ENS than DNS currently it is also inherently less useful. Matching prices right now seems like it would hinder adoption since you aren’t really getting that same value out with the fees that you pay.
I think too high of a rent will hurt the system as it attempts to drive out squatting. The person that registered 20,000 names could be just as likely to relinquish those names if the rent is $1 or $10, and it’s harming adoption by regular users to have such a high price. “Why should I get a .eth name when I can just pick up a .xyz for less and do the same things?” One may argue that the decentralized nature of a .eth name gives it that value (which it may to us, that’s why we’re all here!), but I don’t believe the average user will think so. It would be really neat if people began using ENS because it was cheaper, easier, more useful, and offered more control than the traditional DNS system. I can see users even running traditional websites on it in the future and integrating into the current system!
If the purpose of rent is not to fund development as claimed, should it go towards development? It would be interesting if individuals were able to choose what their rent funded. (EF, ENS Foundation, lottery, charity) I don’t think one gets to declare rent is not used for system development and maintenance, yet still model the price around another system that does and then collect and spend the funds in the same manner.
Onto the 3-6 Character Auction - This new idea of short name Ether deposits (which I will call Spent-ETH) being spent rather than locked creates a very different game mechanic than before. With the original locked deposit scheme it is easy to lock up some unused Ether on a name and squat on it because there is nothing at stake. Adding rent is proposed as a way to disincentive squatting, so I must conclude that the purpose of the Spent-ETH mechanic is to raise funds for the ENS Foundation/Truenames. This mechanic interestingly could prevent names from finding their ways to owners that will use them, as it creates a sunken-cost-fallacy mindset in the minds of early owners. “I already spent 2 ETH on this name that I’m never getting back, so now I’m going to pay a few years rent and squat on it until I can try to get my money back.” This could encourage squatting for the purpose of capturing funds for the ENS Foundation/Truenames. Where before a user may just give up their unused name because they no longer want to pay rent and don’t have much to lose by letting it go, they now lose that Spent-ETH by letting the name expire. It also creates an artificial perceived price floor where owners won’t sell much below their Spent-ETH deposit amount, whereas the current 7+ names the deposit is reset to .01 ETH and the name can switch hands at a fair price and be used by someone. Whether the increased funds raised can eventually be put to good enough use to overcome the harm from the squatting caused, and to actually increase adoption, is unknown. Those funds would essentially need to be used to build out the system enough to bring the value of those names up to where people would feel ok letting them go. I don’t think a name that sells for 5 ETH in this auction, where the 5 ETH is stripped out for development, is necessarily worth 5 ETH anymore. I believe we would see a land grab where people pay too much because we don’t know the value of these names, and then see them stuck holding an empty bag that they refuse to get rid of.
It would be interesting to create a mechanism where the Spent-ETH could still seem useful and in control of the bidder, rather than going right into the ENS foundation. I can imagine a system where the Spent-ETH becomes a balance locked up with the name, and the current owner of that name is given rights over how that balance is spent over time. If the name is sold to a new owner the balance remains with the name. It could be used to pay rent on the name (which is automatically deducted at a timed interval), upcoming storage fees on the Ethereum network for storing the name, possibly transaction fees, or again fund the EF, ENS Foundation, charity, or a lottery (The choices may be up to the ENS root key holders for now, decentralized in time). Rent would become an automatic deduction of this Spent-ETH balance and go towards a cause chosen by the current name owner, but the Spent-ETH balance could also be fully donated at any time. By default, this could be set to 50% EF - 50% ENS (this would need research by people smarter than I am). If you wanted to participate in the lottery, you must match the same amount to the ENS Foundation. I think this mechanism would lessen the sunken-cost-fallacy effect because the name would retain some of the original value deposited as Spent-ETH. An owner would be more inclined to let a name they deposited 2 ETH as Spent-ETH go if they were receiving 1.9 ETH rather than .5 ETH for the name, and a buyer would be more inclined to pay 1.9 ETH for a name if it still has 1.99 ETH in Spent-ETH locked up that they can use for donations, transaction fees, or for future rent. This proposal:
Creates a higher turnover rate of names to useful owners than the original proposal above.
Creates an incentive for the ENS Foundation to be transparent and create proposals about how much funding they need, and allows each .eth name owner to make a decision about whether they would like to fund the current work of the ENS Foundation. This lowers the incentive to takeover the ENS Foundation, as funds are distributed over time and in a manner chosen by each user of the system independently. Once their periodic funding goals are met, excess funds could be diverted to the other funding options (EF, grants, lottery).
One possibly funky mechanic here is that the ENS foundation could buy names on the second market selling for less than their amount of Spent-ETH, and then immediately transfer the Spent-ETH balance to themselves, and then let the name expire. They could profit off any underselling name, but would also allow owners a quick exit from a high Spent-ETH value name. The ENS Foundation could alternatively refuse to flip these names in order to hold out on receiving more of the entire deposit rather over time than just the profit off the arbitrage. Despite this little game, those names could be reset and find a better market value.
I’ve also thought about minting 1 SETH token for each Spent-ETH which could be traded on the open market but I’m not sure what consequences that would have. Some users would surely speculate on the token, or bid high and try to sell the tokens immediately. Perhaps someone smarter than I am can theorize on the consequences of a token. Would it still only be able to be unwrapped by approved groups such as the ENS Foundation or EF?
Regarding the whitelist, I think that reserving names for certain projects is unfair. For instance, the projects Cent or Status: although these projects are currently active in the space and it seems like they should own those names, they chose words that have literally been around for at least hundreds of years. They did not necessarily create all the value in those words, they simply adopted popular names to add utility and value to their project. Why should they receive preferred treatment over others that may want to build on those names? Why does the Cent project deserve to have that name over the person that has owned cent.com since before the inception of Ethereum and the ENS? Perhaps cent.eth would have sold for 5 ETH without this project even existing, and now they get on this whitelist and now only need to spend for example 1 ETH to do it; is that fair? Can I roll up a crowdfunded ticketing project called Ticket and capture ticket.eth for 1 ETH, when it would have sold for 10 ETH in the auction? Where do we draw the line though and who makes those calls? Surely MyCrypto created all the value in its name and anyone trying to buy that name is squatting, but someone may just want the name cent.eth because it’s a nice word and they’re willing to pay to use it. It’s just way too subjective. I would much rather see 2nd layer systems that were integrated into dapps that say “Are you sure you want to send money to cent.eth? It is not owned by Cent. Consider centproject.eth” I think these 2nd layer curated lists would be just as effective at preventing fraud, without compromising the decentralized integrity of the registry.
I would be interested to hear input by more of the root key holders, as they ultimately will be enacting these changes. I would particularly welcome Vlad’s input since he’s done so much work on governance in the space, and may have some insights into how this centralized service should transition into a decentralized one. Perhaps we should be thinking far ahead into the future to when governance is decentralized so that the decisions we make today still make sense tomorrow, and so that we can try to avoid unintended consequences.