Faced with the growing popularity of Ethereum Name Service (ENS), Vitalik Buterin warns against the problems caused by speculation on domain names, for the DAO of the protocol. Thus, he proposed ways to improve, including through a system of annual fee.
Vitalik Buterin questions the current shortcomings of the ENS
He highlighted the problems that this could cause. In particular, he points the finger at speculators buying many ETHs, hoping to resell them with a capital gain. According to his analysis, Vitalik Buterin estimates that a majority of the 5-letter words in the Scrabble list are already taken and that 40% of them are for sale or have been sold on OpenSea.
While this problem is still marginal, it could intensify in the long run. Indeed, registering an unused ENS is cheap, so much so that it encourages the tendency to reserve names for speculative purposes.
This trend could lead future users of this technology to turn to the secondary market, as their preferred name would already be reserved. And it is on this secondary market that prices can skyrocket.
Vitalik Buterin then describes a scenario where many ENS would be dormant, because their owner would not agree on a sale price. This would lead to a loss of revenue for the Ethereum Name Service DAO, causing it to lose out on innovation.
Proposed solutions to get around the problem
Faced with this observation, Vitalik Buterin has proposed ways to improve the current system. This could include a system of annual tax, which would encourage not to keep NFTs only for speculative purposes.
After having explored several versions of this potential tax, one of them seems to present an interesting compromise.
It would consist in creating an auction system via a smart contract, in which potential buyers would place their bets. The mathematical function that calculates this tax would then take into account the highest bid to define an annual amount to be paid.
The owner of an ENS would then have the choice to pay this tax or to accept the proposal of the highest bidder.
Such a system is certainly imperfect, but it is one of the development paths proposed by Vitalik Buterin to improve the functioning of Ethereum Name Service. If the founder of Ethereum is aware that there are no miracle solutions to alleviate the problems caused by excessive speculation, he hopes at least to provide some food for thought.