Announcing the ENS 3-6 Character Auction


#10

On the end workshop I attended I remember Taylor M speaking about the two types of offers they had to buy myetherwallet.com: the first was a classic VC, offering some 5 digit number negotiable to maybe a million or so, and wanted to know all sorts of details about the business; the other was a random private email where someone would sign to prove they had ownership of tens of millions in bitcoin and offered absurd large prices, if done discreetly and no questions asked.

Malicious actors can make a lot more money from a domain, and therefore can offer a lot more, forcing app owners to pay large taxes or sell against their will. Also, for many apps, it’s quite important that an app can be relatively sure they can own a name for a long time…


#11

You’re misunderstanding hiw all of it works


#12

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.


#13

Can someone please clarify what is meant by ‘standard registration rates’ for renewals? Is this a fixed amount the same across all domains? The initial bid price of the domain? A percentage of that?


#14

Hello. Makoto from ENS team here.
Harberger tax is something we discussed at length on twitter a few months back when Lane Rettig proposed(https://twitter.com/lrettig/status/1051132431108120577
).

TLDR; One of the conclusion came out of the discussion was the difference between property and identity. In case of property, the land price tend to change based on the surrounding area (eg: goes up if hip cafe opens near by , goes down if some pollution or natural disaster happens in the area) regardless of what the owner does while identity price goes up/down only by the effort of the brand they have built and Harberger tax mechanism is geared towards penalising the effort.

Do you have any thoughts on the aspect?


#15

Hello, Makoto from ENS team here. you have a long thread so I only refer to the white list part. What @decanus suggests in case of Cent is that if there are more than one provable brands claiming for whitelist, then it just goes into auction. Reservation of short names


#16

I still disagree with this because it is too subjective who is provable. Maybe I’m blowing it out of proportion and there won’t be many incidents, but it seems fundamentally too corruptible. Is it only crypto brands? What qualifies as provable? Does the brand need to have existed before these posts? Can anyone file a dispute and send the name to auction, or only brands deemed reputable? It’s introducing an element where the community must trust a group of people to make the right decisions in a system that could be trustless.


#17

I don’t disagree with you. How to make it “Provable” is still up for discussion and that’s why we opened up the discussion to the community whether we can come up with something practical (eg: trade mark or/and the the ownership of the domain name for certain period). I am also keen to know how many people actually apply for whitelisting (also depending on the price of whitelisting). If it’s relatively small number (eg: less than 100), we could do some manual check whereas if it’s too large, then need some automated way, I think.


#18

This is actually exactly one of the reasons why I think Harberger taxes make a lot of sense for 3-6 letter names and not longer ones. Longer domains are more likely to be identity-like, meaning that (i) their value primarily depends on the owner’s actions and (ii) the only contestants are often a single obviously “legitimate owner” and a pool of scammers or shady advertisers.

Shorter domains are more property-like; for something like eg. brave.com, there’s a potential large pool of contestants, as the name makes sense not just for a web browser but also for pretty much any other industry (there’s a brand of deodorant called Axe, so why not fill out the “warrior” theme by making a competitor called Brave?). So there are many possible contestants, and the value arguably depends much more on the prominence of the .eth TLD itself.


#19

I would agree in the case of brave, but then there are also very specific domains like “ujo” for example which are made up words that could be at a large disadvantage due to harberger taxing.

We also need to consider that the velocity introduced through Harberger taxes can be a security issue for the general user and have a negative affect on those simply trying to resolve names even when a cooldown period is introduced.


#20

My concern with harberger taxes is still one of externalities: The value of a domain to its owner can be a lot less than the cost of losing it to others. For instance, if I own wallet.eth, and sell subdomains of it, the value to me is only what future registrations I can extract. The value to a scammer, however, is whatever funds they can extract from existing users by taking over the name and phishing or scamming current subdomain owners.

Measures like transfer delays and notifications can reduce the profitability of such scamming, but I don’t think they change the basic equation: most of the value of a name is extrinsic.

Schemes like this also remove one of the key advantages of native ENS names over imported ones from DNS: the ability to guarantee ownership through consensus. For applications such as package management, it can be a big advantage to be able to state categorically that a name will remain stable for an extended period (or indefinitely), which can’t be the case if names can be purchased at any time.

That’s a reasonable point; we’re taking $10 as a sort of schelling point because we know it works for DNS. On the other hand, I really don’t think the price of two coffees a year is an undue burden - and that’s been the mean price for DNS names for a long time, before the internet was as widely used as it is now.

That seems unlikely to me; squatters don’t have unlimited money, and increased rent prices put a lower bound on the least valuable name they will bother squatting on.

A simpler version of this - letting users choose what proportion of the funds are sent to the root keyholders and what proportion are burned - has some nice game-theoretical properties, and helps guard against misuse of funds.

I really don’t understand your conclusion here.

Sunk costs - in the form of opportunity or interest costs - exist in a deposit model as well.

This is a good point - if short names are reservable, what should we do about names that are used for well known projects, but are also common words?

One option is to defer to the existing trademark system, which recognises ownership over even common english words, as long as they’re used in specific fields in which they’re understood to refer to the product.

The “standard registration rate” is the price anyone pays to rent a name - a fixed amount that doesn’t depend on the price it went for at auction.

If the reservation process is conducted in the open - which is the intention - no trust is required. Anyone can observe the proceedings and decide for themselves if the rules for reservations were followed.


#21

Bid proceeds will fund ongoing ENS operations. Use of excess funds is open for discussion too.

As I understand it, this means that rather than fees getting burned like in the current 7+char auction, they’ll be going to a wallet the ENS team controls. They’ll decide what they need for their operation and what happens with the excess. I know you guys and trust your judgement but this model stands out in contrast to the way I expected things to work. I respected the original financial model because it didn’t give any extra power to the contract owner, nobody else was going to be able to come and undercut it in some way.

If the ENS team get payed by the bidding process then they are trading trustlessness for eth. Regardless of how the bidding system is set up, the team can almost guarantee that a person of their choice receives the name they want, they can win the auction by putting down an unreasonable amount and simply paying it back from the ENS wallet it goes into. It incentivises corruption.

I don’t have a great solution that doesn’t involve burning the coins but I’m still not a fan of this one.

As for the bidding process, I’m not a fan of having all the short char bids go live at once, a lot of people,(me included) have a very limited amount available to spend on an ENS name. They can either go all in on one they really want or they can split up their already small bid and go for a few in the hopes that they end up with something. I’d be surprised if this didn’t turn a lot of people off of the idea completely.

One last thing, did people not like the idea where the higher a bid is, the longer it gets account locked for. I.e. a name won for 0.01 eth isn’t locked at all and one won for 1000 eth gets locked for 5+ years. You could complicate it a bit more by allowing the bidders to choose the lock time they are comfortable with, someone registering their own name will be happy holding it for 10 years but a squatter certainly won’t be. This makes the auction more complex in return for adding a lot of friction to resellers.

Apologies for the long message, I’m sure a lot of what I mentioned has already been tackled and it’s very possible that I’m missing things.


#22

Not really, the money would likely go into the root keyholder multisig, which is not controlled by the ENS team. You would need to corrupt a lot of external actors along with the ENS team for this to work.


#23

This discussion seems to have gone off the rails from the original post (which was only asking a couple specific questions) but I wanted to pipe up on the topic now being discussed.

The only problem I want ENS to solve over existing DNS is censorship! Anything that allows for any kind of censorship makes ENS, IMO, no better than DNS. When some state power decides that I am doing something that goes against its agenda, I want my ENS name to continue working regardless of how many wars they start, people they wrench attack, other states they apply pressure to, etc.

While it would be nice to do something about squatting, that isn’t the real problem with DNS IMO. It is an annoyance but DNS still largely functions fine with it. Any solution to squatting that opens the doors to censorship of any kind is a non-starter IMO.

It would also be nice to solve the problem of scammers hijacking names, but again any solution that opens the doors to censorship is a non-starter IMO.


#24

I don’t know anything about this root keyholder multisig, could you point me towards some more info? Happy to be wrong.


#25

The root multisig is mentioned in the FAQ. The current keyholders are Aron Fischer, Dan Finlay, Nick Johnson, Jarrad Hope, Piper Merriam, Taylor Monahan and Vlad Zamfir.


#26

In terms of censorship, this will never happen in ENS. The dispute resolution system to ENS which we plan on creating will run as a second layer which dapps and users can choose to acknowledge or ignore.


#27

If all auctions start at the same time, what will happen to names that didnt receive any bid? Will it be possible to start an auction for shorter names later? Will it be the same 30+15 day procedure?


#28

Point 1: I believe the market regulates itself. Being a company friendly it’s a good standpoint and below you may find my point of view and my suggestion.
Blockchain domains are not a breaking news on the blockchain, therefore company Ethereum’s friendly are already aware of this. If the scope is to involve companies not already aware about it yet you can consider a couple of articles / interviews on Bloomberg: none can can complain to not be informed.
I help companies in retrieving blockchain domains won in auctions by someone else who doesn’t have any entitlement to the company or the brand and the majority of them were not informed about auctions in May 2017.
30 days auction? In terms of hype I believe that the actual timing (3+2) or longer timeframe like 7+5 combined with a scheduled calendar can be the right recipe.

Point2: I strongly agree with the Paolo Rebuffo’s point of view (ref. Announcing the ENS 3-6 Character Auction) I suggest to take into consideration this point of view.
The suggestion of Vitalik Buterin about the fees make sense. Regarding that suggestion, the right question is what is the value of the domain?
Please be informed that a project about that was already developed and deployed.
@nickjohnson @vbuterin2 if you’re interested in going deeper into that project I can put you in touch with the team that developed that project.


#29

That is not the issue. I already own a ENS domain name and i am pushing for my compagny to adopt ENS. They are very interested but are afraid someone will outbid them. It’s really stressfull to think that even if you are aware of all the details (and part of my assigment is to follow that closely) we might still lose to someone that would be ready to pay thousands of ETH to blackmail us. What to do in that case ? Do we abandon the ENS ? Do we look for another name ? Do we pay ?

Not being sure we are getting the name (that is not a common english name) is halting all integration of the ENS in our product, which I believe is a shame. @ethereumkev said “I can’t think of anything that would help ENS as much as teams in the ecosystem putting the domains to good use”, I’d go further and say that is crypto compagnies struggle to get their ENS domain and develop solutions on top of it then the whole ENS is pointless.

Also, I really don’t think a layer 2 solution would work. When you go to google.com you expect to end up on the right place directly, having a warning tell you to go somewhere else is like having a warning for a non up-to-date ssl certificate, it kills the UI. The question of who controls the layer is also important has anyone controlling it would have a censorship capability.

Funfact, my former school is called ENS (www.ens.fr), I’m glad to say I have a PHD from ENS, but then it get me wondering, who should get ens.eth ? :stuck_out_tongue: