Chris Remus, project manager for the Ethereum Name Service (ENS), recently posted a summary of three proposals the team is considering as it moves toward its three-to-six-character auction and permanent registrar. The ENS proposes to (1) hold all the funds it receives for the time being, (2) implement a sliding fee scale for domain names based on their character length, and (3) institute a 60-day window between when the auction begins and when the permanent registrar is deployed.
Back in December 2018, Remus announced the ENS' upcoming three-to-six-character domain auction. Currently, individuals can only claim .eth domains comprised of seven characters or longer, a decision made to discourage speculators looking to land-grab shorter, potentially more valuable names. When the announcement was made, though, one vocal reddit user claimed that the auction's tentative design was problematic, especially because the ENS would keep the bid proceeds in excess of operational costs, rather than return them to auction participants. This setup is in contrast to the current model, in which all deposits for .eth domain names are refunded at the end of the rental period.
In his most recent post, Remus provides justification for the ENS maintaining these overflow funds. He notes that Nick Johnson, lead developer at the ENS, spoke with the Ethereum Foundation's lawyers, who told Johnson there could be potential tax implications related to transferring the Ether held in the ENS' multisig wallet.
Apparently, the funds, when transferred, would be counted as income for the "owner" of the wallet. In this case, True Names LTD (the company tasked with overseeing the ENS' development and standardization) would likely be the designated "owner" and thus be responsible for paying taxes on the transferred funds.
Holding the extra ETH for the time being would not only allow the ENS team to discuss how to better use these funds in light of their tax implications but also would enable the organization to adhere to its timeline for the permanent registrar (planned for deployment around May 2019). Further, there may not be any overflow, in which case the possible redistribution of such funds would be irrelevant. Ultimately, Remus says this decision would introduce "a negligible amount of risk."
Indeed, on the ENS' discussion forum, not much mention has been given to the team's proposal to hold potential overflow funds. Rather, community members seem to be more concerned with the ENS' proposition to implement a sliding fee scale for domain names based on their character length.
As currently proposed, the scale would require a rent of $10 per year for names six characters or longer, $40 per year for five characters, $160 per year for four characters, and $640 per year for three characters. As Remus indicates, shorter names are likely to be more valuable due to their relative scarcity, so they should cost more than longer domains.
A few individuals do not agree with this model, however. One commenter, Jim McDonald, says the system does not properly consider pictographic and logographic languages, as a symbol does not necessarily correspond to one letter. McDonald adds that relative scarcity may not be the best basis for rental fees either because, as he argues, the domains are not necessarily scarce. The number of options for three-, four-, and five-character domains is – according to McDonald – around 300 times the total number of registered .eth domains to date.
Johnson responded to these points, noting that he is unsure how to mitigate the possible disadvantage faced by registrants who use pictographic or logographic languages. He also worries that if the rental fee were less expensive for three-character domains, then speculators would create a market of buying and reselling domains for profit (i.e., squatting or land-grabbing).
In any case, these proposals for the forthcoming three-to-six-character domain auction and subsequent permanent registrar are works in progress – they will be more refined as the ENS continues to receive feedback from the community. Johnson has been responsive to commenters thus far, replying to many of their suggestions and critiques in the discussion forum.