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Are we approaching a time when domain names will be considered an asset class, like bonds, stocks, real estate, currencies and commodities?

Will investors be able to hold domain name investments without the need to be directly involved in buying and selling of individual domain names?

Domain names as an asset class recently took a significant step forward with the recent initial public offering of shares in the domain name Directions.com.

Domain Names As Assets

Domain names already possess many of the characteristics of an asset class. They have clear business value, and at least top-tier names are seen to be appreciating in value. There are established marketplaces where they are sold.

Escrow.com first published in 2019 their report Alternative Investing: A Comparison Between Traditional Instruments and Web Domains. The document compares holding and transaction costs, returns, volatility, and taxation considerations for domain names versus other investment classes.

Escrow.com finds that domains have generally traded positively, that is at steadily increasing prices, and with less volatility than several other asset classes. A series of quarterly reports since then has updated the Quarterly Domain Investment Index.

Nevertheless, we have never had any sort of investment market where packages of domain names are traded in the way that other assets are traded through mutual funds and exchange traded funds. That is partly because of the challenges noted in the next section.

Challenges To Domain Names As Assets

There have been several challenges to domain names achieving acceptance as an asset class.
  • Valuation The current value of stocks, bonds, commodities, real estate, etc. are generally known within small uncertainties. In the case of domain names, since each name is unique, even experts may significantly disagree on the valuation.
  • Liquidity While some domain names are more liquid than others, in general one cannot immediately sell a domain name for market value the way you can a stock, bond, currency or commodity, or even many forms of real estate.
  • Potential Legal Threats While all businesses face the possibility of legal challenges, for domain names the possibility exists that a name could be challenged the entire value lost.
  • Type Of Asset Centralized domain names are different from property, in that the registry and registrants have rights, including renewal rights, but do not own the extension or domain name as outright property, and must operate within the ICANN framework. This is less true for decentralized domain names.
None of these are absolute barriers to domain names becoming a widely traded asset class. Recently shares in a single domain name were sold in a securities commission compliant way, and that may pave the road for broader acceptance. Let’s first look at the details of that initial public offering.

The Directions.com Initial Public Offering

Shares in the domain name Directions.com were offered via the RallyRd service. The offering went public on Jan. 14, 2022. All shares in the initial public offering, $140,000 in total, were sold in only 14 minutes.

The offering was a partnership between MediaOptions and RallyRd. Individual buyers could be in for as little as a $10 share, with shares purchased through the Rally app. There were 597 investors in the initial public offering. You can track the asset at places such as Vincent.

Essentially RallyRd creates a company that is the collectable, in this case the domain name, and then issue a set number of shares in that company. You can read more on how RallyRd offerings work here.

RallyRd previously used this model to sell shares in a wide variety of items including art, vintage automobiles, collectable objects such as the first Apple I computer, trading cards, vintage wine, sports memorabilia and more. You can browse the RallyRd collections here.

Masterworks sell fractional shares in valuable works of art in a somewhat similar way.

The primary roadblock to fractional ownership of domains in the past has been SEC acceptance. Andrew Rosener, CEO and founder at MediaOptions, explained
We have worked with RallyRd to get domain names as an asset class approved by the SEC for fractional investment through public offering. We believe this is a natural evolution of the asset class and an incredible leap forward for the domain industry.

You can read the full RallyRd legal disclaimer here.

After 90 days of holding, owners can trade their shares via the app.
You can sell some or all of your shares on the Rally app through select registered broker dealers. After an asset’s Initial Offering, we impose a 90-day ‘lock-up’ period during which shares cannot be bought or sold. Once the ‘lock-up’ period is over, the INVEST button is replaced with BUY and SELL buttons so you know the asset is Trading. You can sell your shares during ‘trading windows,’ which open for each asset about every 90 days, by submitting sell orders (“ASKs”) through the app.

When the domain name sells, owners are compensated according to their share percentage, although most collectables at RallyRd are expected to be held for a long period.

The domain name directions.com previously sold for $75,000 in the 2020 NamesCon Auction. The name has a monthly search volume of about 2 million, with a cost-per-click of $0.64 currently. The domain name has been continuously registered since 1995. The Wayback Web Archive shows that the name was used for some years by a marketing and consulting firm just over a decade ago. It is likely this name was selected partially because it seems benign of potential legal challenges. It also had a recent sale, so valuation is less uncertain than for a domain name that has never previously sold.

While this is the first public offering of a name via the MediaOptions – RallyRd partnership, it won’t be the last. Andrew Rosener publicly suggested that other single names, baskets of similar names, or collections from a single sector, like health, were future possibilities.

Earlier Fractional Ownership Initiatives

There have been several earlier fractional ownership domain name initiatives. For example, Aron Meystedt described in this NamePros thread that shares in NNR.com sold out quickly. You can read the document that went with the NNR offering, that covers a number of points such as what would happen if there was a UDRP and how the decision to sell or not would be taken. You can read the NamePros announcement and discussion of the NNR offering here. In that case it was claimed the domain name was not a security.

@garptrader started a NamePros discussion on Domain Name Tokenization early in 2020.

In summer 2020 @abstractdomainer started a discussion Part Ownership: Can I Own A Part Of A Domain?

Dan Supports Fractional Ownership

Dan (then Undeveloped) had fractional ownership in mind when they developed the Domain Automation Network.
We have built WHOIS 2.0, which also supports fractional domain ownership, to make sure at all times to be able to determine instantly who is liable for the hosted content.

Have Your Say

The rapid and smooth sale of all available shares in the initial public offering has helped validate the model. Packages of domain names will be an even more interesting offering.

The fractional ownership model allows even investors with modest investment funds to be part owners of elite domain names.
  • So what do you think about fractional ownership of domain names?
  • Do you see it as the way of the future?
  • Would you like to invest that way, or do you prefer to manage your own unique portfolio?
  • If new investors enter the market through fractional ownership, without particular domain expertise, do you think that would be good or bad for domain names in general?
  • What do you think is the biggest single obstacle to domain names as an accepted alternative asset class taking off?
 
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The views expressed on this page by users and staff are their own, not those of NamePros.
My question is really what are the benefits?

If I own say 5% of a domain do I get 5% of the revenue in generates?

Do I have voting rights like with stock?

Do I have any input regarding the domain?

If it sells do I get 5% of the total sale?

What does ownership actually mean?


If there is some benefit to ownership then sure. If it is just for the sake of "owning" something with no other benefits, pass for me.

Brad
 
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29,351
If I own say 5% of a domain do I get 5% of the revenue in generates?

Do I have voting rights like with stock?

Do I have any input regarding the domain?

If it sells do I get 5% of the total sale?

What does ownership actually mean?

If by revenue you mean ongoing revenue by parking or sponsored redirection, my understanding is that in this case the plan is not to use monetized parking so there would be no ongoing revenue. I think the earlier fractional sale (NNR) it was specified that parking revenue would be distributed in proportion to ownership - sort of analogous to dividends.

I am not totally clear re voting rights and input re decisions, in this case. They were spelled out in the NNR document, and yes you had voting rights and there was a maximum any one person could own so one or two people could not control. In the case of RallyRd the legal disclaimer document I link in the article says the following. Since if the domain sells the business, which is just to own the domain, ceases, I take it that one is probably granting to RallyRd management rights. It is an important consideration.

"a buyer of shares grants to the manager of Rally Entities, RSE Markets, Inc., a power of attorney to, among other things, execute and file documents required for the Rally Entity’s qualification, continuance or dissolution. "

Yes, my understanding is if you own 5% and it sold for $250,000 say, you would get 5% of that, after accounting for any sales related costs.

My understanding is that the shares mean you are the owner of that fraction of the business they set up consistent with securities rules, and the only purpose of the business is to own this one domain name.

If someone reading this can definitively answer about voting rights, please share what you know or correct any interpretations I have given in this post.

Bob

PS I see now you said your real question is what are the benefits. I see if someone feels convinced domains are a worthwhile investment, but does not want to deal with actually selling, this gives a way to invest in tier 1 names. I personally did not consider investing as I like to do the various aspects of selecting, pricing, listing, promoting and selling names myself. I suspect many NamePros members feel similarly.
 
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AEProgram

Top Contributor
Impact
5,121
Another idea is we are going to be gambling is to create a lotto.

Take a premium name you want to sell for 70k, offer a ticket for one dollar, when it reaches 70k in ticket sales you hold the drawing and the winner gets the name.

This is like the penny auction concept but different.

You also have to deal with regulation.

First one to do this will generate some good money and then it will die off.
 
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The most significant hurdle I see are the costs of complying with securities regulations in all jurisdictions where investors want to participate. It is common in the US that small companies wanting to go public cannot do so due to the significant regulatory burden of complying with securities laws. How many domains are worth enough to overcome this roadblock?
 

AEProgram

Top Contributor
Impact
5,121
The most significant hurdle I see are the costs of complying with securities regulations in all jurisdictions where investors want to participate. It is common in the US that small companies wanting to go public cannot do so due to the significant regulatory burden of complying with securities laws. How many domains are worth enough to overcome this roadblock?
How do all these NFT's get away with it
 

Kingslayer

Top Contributor
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6,895
I like the concept i have to say.

I think it could be good for single word domain owners, whoever owned Directions dot com before, got $140k quickly.

People from various backgrounds can own stakes in a ultra-premium assets.

And your not stuck waiting for the domain to sell, you can sell your shares on.

It seems win/win/win all around.
 
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Thanks again Bob for taking the time for another interesting topic entry!

Regarding "Are we approaching a time when domain names will be considered an asset class, like bonds, stocks, real estate, currencies and commodities?"

I was under the impression that domains were already there lol

Domains imo, offer a piece of static individual peace of real property on the internet scape.

I view it as... you own the asset but must pay a type of tax (renewal) to the registry (type of infrastructure authority). If you do not pay the fee, you eventually loose the property.


Regarding domain sales ..what are the accounting rules? Sales of domains are taxable, correct?
 
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How many domains are worth enough to overcome this roadblock?
A good point. Andrew Rosener made clear that while open proposed names for consideration for fractional ownership, they are only interested in truly high-value and probably just .com.
I was under the impression that domains were already there lol
I don't think quite there yet, but do understand your point of view, and agree we are part way there.

As far as I know investors with a discount brokerage can't yet invest in a domain portfolio ETF or mutual fund in the way that they can buy stocks, bonds, REITs, etc.

If we reached a point that many fractional ownership domains were on market and shares trading, it would be possible to set up a Domain Investment Trust that held a diversified portfolio with shares in a number of them, much like a REIT (Real Estate Investment Trust) operates. There would be publicly disclosed managers of the trust, past performance would be published, a statement on their investment objectives would be posted, etc. I think we could get there, maybe not in long, but are not there yet.
I view it as... you own the asset but must pay a type of tax (renewal) to the registry (type of infrastructure authority). If you do not pay the fee, you eventually loose the property.
Yes the real estate analogy, that you own but must pay annual fees and have some constraints that could challenge right to keep, is appropriate. It is not like buying property in the sense of buying an artwork or a bar of gold, though. Also, I think ICANN view even the real estate analogy is not quite applicable, in that when you own a domain name or a TLD it interacts with the whole Internet, and must be subject to centralized provisions.

ICANN have delayed the transfer of the former UNR TLDs on the issue that they were promoted by seller as though property, and by coupling the TLD to a NFT in a bundle, that property angle was inherent since owning a NFT is regarded as owning property. Even though .hiphop have agreed to destroy the associated NFT, the issue is still under consideration. I think to what degree domains and TLDs are property has a lot of implications, and it is a huge issue, much more than the TLDs directly involved. I am considering a blog post just on this topic of property and domains.
Regarding domain sales ..what are the accounting rules? Sales of domains are taxable, correct?
Definitely taxable. As far as I know in all jurisdictions. The issue of the type of asset they are is though perhaps less clear. I am not sure this is right, but I used to run a creative photo products home-based business and evolved into treating my domains the same way. I track costs, inventory worth, sales, expenses and report under Canadian small business structure.

Anyway, are domain names property is a hugely important question.

Let me make a bold prediction: within 3 years we will have a Domain Investment Trust (DIT), publicly traded, on the same model as REITs. And once we have one, we will have many, with different regional, TLD and sector emphasis, some well diversified, some very specialized, like a DIT just for aspects of space exploration, for example. Someone can please remind me in 3 years that I was wrong.

Thanks for the great points and discussion, everyone.

Happy domain investing,

Bob
 

HappyW

Collector
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524
  • So what do you think about fractional ownership of domain names? ---- Only for Generic word .coms
  • Do you see it as the way of the future? ----This approach will not gain popularity
  • Would you like to invest that way, or do you prefer to manage your own unique portfolio? ---- Owned
  • If new investors enter the market through fractional ownership, without particular domain expertise, do you think that would be good or bad for domain names in general? ---- Badly, High risk.
  • What do you think is the biggest single obstacle to domain names as an accepted alternative asset class taking off? ----Knowledge barriers and interests. If someone did a survey of domain buyers, they would be characterized as entrepreneurs or programmers.
 
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