Pricing models

To create a Sybil-resistant system for allocating domain names within a namespace, a monetary fee must be introduced for both registrations and annual renewals. This page outlines different pricing strategies that will be implemented on AZERO.ID to ensure that domains are accessible to all socioeconomic backgrounds while preventing domain squatting.

Currently active

Fixed-price registrations

At launch, available domains can be registered for a fixed price based on their character length.

Base fee

Find the fixed base fees for each domain length in the table below. The base fee is the price for the first year of the domain registration period or the start price for an auctioned domain.

Multi-year registrations

Users can register a domain for one year at the initial base fee or prepay for up to three years with a premium added on top, for the second and third years. This way domain squatting is disincentivized, and users can still secure a domain for up to three years at a fixed rate:

Without these additional costs for upfront registrations, users would be incentivized to pre-register domains with a high expected value increase to exclude them from being subject to the upcoming demand-based pricing model in the first three years.

Available later this year

Demand-based renewal pricing

Motivation

Vitalik Buterin has proposed a demand-based renewal fee for on-chain domains in a recent blog post (opens in a new tab). This concept is based on several key motivations, aiming to enhance the current domain ecosystem:

• Prevention of domain squatting: By tying renewal fees to demand, the system can minimize the unproductive hoarding of desirable domain names.
• Reduction of value extraction: The proposed fees are intended to decrease the profit that can be obtained by those who manipulate the scarcity of popular domains, benefiting projects and communities instead.
• Increased utility for users: Implementing this fee structure could free up a greater number of blocked and unused domains, expanding opportunities for legitimate use.

When implementing such a demand-based pricing model, it's vital to keep domains accessible to all socioeconomic levels. The derivation of prices must be clear and the reasoning behind them transparent to the user without harming their experience. This includes balancing strong ownership guarantees for the users while disincentivizing domain squatting.

AZERO.ID will be one of the first on-chain name services to deploy this dynamic fee structure in production, offering valuable insights into the effects of such a system.

Implementation

The computation of a dynamic renewal fee for a subsequent year will consist of a linear equation that incorporates the base fee for a given domain and a specified percentage of the highest bid which is used to increase the price. A bid is only taken into consideration if it's within a predefined period before renewal (e.g. four weeks). Also, the increase of the renewal fee is capped at a certain limit relative to the base fee to ensure certain ownership guarantees for the user.

Formula

$F_{renewal} = \max\left( F_{base}, \min\left( F_{base} \cdot \frac{P_{cap}}{100}, Bid_{max} \cdot \frac{{ P_{bid} }}{100} \right) \right)$, where

• $F_{renewal}$ is the renewal fee for the next year,
• $F_{base}$ is the base fee for the given domain,
• $Bid_{max}$ is the highest bid for the domain within a predefined period before renewal,
• $P_{bid}$ is the percentage of the highest bid used to increase the price,
• $P_{cap}$ is the maximum allowed percentage of a price increase relative to the base fee.

Example

The example below illustrates the application of the formula to a 5-character domain with the following values:

• $F_{base} = 6$ $AZERO
• $P_{bid} = 1 \%$
• $P_{cap} = 1000 \%$

This method represents a fundamental application of demand-based pricing to renewal fees. Subsequent iterations of the protocol will likely be influenced by the observed effectiveness of this system in real-world practice.

Multi-year renewals

Ideally, this dynamic pricing model is applied every year to have the renewal fee as close to the current fair market value as possible. However, this could significantly degrade the user experience and predictability as users would lose the ability to prepay for a domain for multiple years at an upfront known rate.

Formula

The approach from above could be applied to multi-year renewals as follows:

$F_{renewal}(y) = \max\left( F_{base} \cdot C^{y-1}, \min\left( F_{base} \cdot y \cdot \frac{P_{cap}}{100}, Bid_{max} \cdot \frac{{ P_{bid} }}{100} \right) \cdot C^{y-1} \right)$, where

• $y$ is the number of years the domain is prepaid for,
• $C$ is a constant premium factor that is exponentially applied to the renewal fee.

Example

This extends the previous example with multi-year renewals and a premium factor of $C = 2.5$:

Available later this year

Premium auction-based registrations

To align with the motivation behind the demand-based renewal pricing and accurately reflect the potentially high value of short domains, an auction system will be implemented for domains with fewer than 5 characters. A competitive bidding approach ensures that the initial price for these distinctive domains is based upon demand and closer to its fair market value.

The start price for an auction is the base fee for the specific length of the domain (e.g. 80 $AZERO for a 4-character domain). Every auction will then run for 14 days. The user with the highest bid after 14 days will be able to register the domain. Shortly before the auction ends, every new bid will prolong the auction by additional 5 minutes to prevent bots from sniping the auction.

The auction price will be the cost of claiming the domain for the first year. The renewal fee is independent of the auction and will start as the base fee for the specific domain. Auctioned domains will be subject to the same demand-based renewal fee system described above.

Further, an auction only starts with the first bid (which can be as low as the base fee), to eliminate idle auctions with no interest that flood the auction system and hurt the user experience.