[Music]
watching on the live stream my name is
Tim and I'm the founder of KB news and I
will be talking today about demand-based
reoccurring fees in practice so if
you're a developer you might have seen
this already or you might have come
across this problem uh you know you you
have a new site project or something and
you found the name and you type it into
a domain name search and then what you
see is that uh yeah the domain name is
just not there uh and then in my case
for example I looked for KB news.com uh
and there's actually a 500 error so a
500 uh status error so it's actually not
even uh used and then I looked it up how
much uh it would cost for me to
transition the domain and it was
actually
8,000 uh 800,000
uh dollars um oneoff fee and $21.99 a
year to then rent the domain and this
kind of annoying because I would love to
use the domain um and fun fact all four
letter.com domains have actually already
been taken since
2013 and so in the talk today I want to
give you this promise that we can
basically already fix this we are just
not doing it and uh you will learn how
and so basically this is not only a
problem in web 2 it's also a problem
already in web 3 and vitalik said this
in his um blog post in 2022 where he
basically said that um all the 9 thou
9,000 most popular um e names that are
in the Scrabble word list for the most
popular words they could have been
rented for 100 uh years for the
equivalence of 12 l essentially and that
is because a e name essentially costs $5
a year to rent and so it's actually just
not that uh much to squat these
domains uh but it it this the problem
even transcends kind of the digital
space and it's actually 100 years old
and here you can see this behind me um
on on this photo from
1914 where somebody bought a a vacant
lot in a city I think this is in
Illinois it's from a person called F
Lewis and I'll read out loud the text on
the poster and then we can talk why what
is going on here so the poster basically
says everybody works but the vacant lot
I paid
$3,600 for this lot and I will hold it
till I get $6,000 the profit is unearned
increment made possible by the presence
of this community and Enterprise of its
people I take the profit without earning
it and for the remedy readed Henry
George so this is very similar actually
to the domain names that we just saw
that that are always being squatted in
that somebody just did it with uh with
real estate right and uh if we look top
down at inner city real estate property
then what we can see is that the pricing
kind of uh is related not necessarily to
the improvements on top of the Lots but
it is related to the neighboring
properties so the A1 Property here is
most likely going to be valued higher
than the A2 property because the A2 prop
property is essentially next to like
this garbage processing facility and a a
factory whereas the A1 Property is in
close proximity to a university a cafe
and so
on and so this really brings us I think
to one of the core ideas of our talk
which is what is JW like what is
georgism or georgism in general as a as
an idea and georgism kind of how
georgists themselves describe what
they're doing is they say there is first
of all land and all land and land is the
source of all wealth in the economy and
so on this land there are fruits that
are growing but I think more generally
speaking these are not only the literal
fruits but also let's say like minerals
in the Earth the soil
even like the air part of the quote
unquote land and then uh even the you
know the property rights that you can
get when you're have when you have land
in a city um and georgists basically
believe that the fruits can be harvested
or extracted from the land by putting in
labor and then the fruits are actually
the desirable good within the economy
and this is uh because for that reason
they can be used to generate wealth and
so georgism really considers labor as
the wealth creating function in the
economy and therefore Georges generally
believe that taxing labor kind of
discourages productive work because it's
just in a way of like extracting more
resources and quote unquote fruits from
the land and so their idea is to tax the
land ownership because that would tax
the uh unearned profits of the land and
it would encourage the productive work
on top of the
land um and so this is one way of
solving the problem right like it this
would solve the this like vacant lot
problem but there are actually more
problems with in the digital space
because for example KV news has this
unique property of being only a useful
domain to a hand of people handful of
people like me for example because I'm
running such a project but to another
person might not be the cas case um and
so there's this idea of a natural buyo
which is essentially this like one
person whose company name is also that
domain name or whose personal name is
that that domain name so like we have
for example vitalic in the uh Community
he is kind of the best known person best
known vitalic out of all of them and so
he's the natur he's like a natural buyer
of that vital. e domain name and the
same is true for coinbase and
uh what ralic said also in this ens post
is that essentially if there is only one
natural buyer for a Project's name then
speculation on top of these domain names
might actually not lead to the best
possible price and it might not lead to
an efficient market and we can look at
this by uh analyzing kind of the
relationship between seller and buyer
and the seller uh so basically on the
vertical axis you here you have the uh
seller at which at the the price at
which the seller is willing to sell the
domain and on the horizontal axis you
have the probability of the buyer
willing to accept the offer and then you
have this slope that basically describes
the willingness of the buyer to buy the
domain at a given price and the seller
actually has this idea in the head about
expecting uh about maximizing their
expect expected Revenue right and so if
we plug this if you plug my preferences
into that chart you can see that um on
the vertical axis on the top there this
7,999 price point which I'm kind of not
willing to accept at a very high uh at a
I'm willing to accept it at a very low
probability but even at the $33,000 I
would only be willing to accept it at a
50% probability and then the maximized
expected uh price for the seller would
be
$1,500 what's interesting here is that
even at the $3,000 price point I'm uh
everybody will only get a used K
news.com domain at 50% of the time right
because there's another 50% where I'm
accepting it and another 50% where I'm
not accepting it and so really the core
idea here
is that of efficiently and inefficiently
allocating property and if we have a
property like on the left hand side the
domain that is currently not being used
and it costs a lot of money then we call
that inefficiently allocated and then if
I would be able to use the website uh if
I would be able to use the domain for my
project we would call it efficiently
allocated so so how do we actually
design for efficient allocation then so
this was kind of the motivation for why
we should even bother right and spoiler
alert it is demand based reoccurring
fees so we can basically start to model
out a solution here by starting out with
the existing state and then gradually
like improving our solution so we have
like these different pricing models and
if you look uh to the chart on the left
you can see that on the vertical axis I
have cost which is the uh red line and I
have demand which is the blue doted line
and you can see you can see in the first
chart that essentially the cost spikes
up initially and then drops to like this
21.99 a year and note how the cost and
the demand are not mapped to each other
so if we have a higher demand we don't
have a higher cost and this is a problem
because it essentially uh encourages
squatting and it also blocks productive
use as I've uh just said like so then we
could say Okay um if we don't want
squatting and we want productive use we
are just going to increase the fee like
increase the reoccurring fee and that's
essentially scenario two where you can
see the demand curve has flattened a
little bit right it's now a bit closer
to the uh I think it Maps a bit closer
to the to the cost curve however here
the problem is is that we might not be
able to anticipate all the valid uses
and so the cost might be too high too
low uh and still demand could rise
throughout time right so really what we
want is demand based reoccurring fees so
a and that's the third chart where
essentially demand and cost are mapping
between between each other and so in
that case we have an efficient market we
have a fair price for the asset and most
likely we'll have uh productive
use so these are essentially
demand-based reoccurring fees and
essenti I mean really to put in a few
words it means that with higher demand
we have higher fees and with lower
demand we have lower fees um many people
in the space here probably know this as
harburger taxes or land value tax but
the idea really is that you will only
buy this kind of domain if you're
willing to like use the domain for some
productive use because otherwise you're
not going to most likely not going to
afford the the fees
essentially um we can compare the
different pricing models so I'll start
with land value TX and then we'll move
into harburger tax just to understand
basically what makes them different and
basically land value tax is really an
idea that that comes from pricing real
estate and essentially it would work by
assessing a property's value and then
constantly like taxing based on the
property's value like a continuous tax
and the valuation of the property would
be done somehow through a government
Market or an index and what is kind of
important to understand when comparing
against Harbor attacks is that the owner
still controls the sales timing so they
can always decline the sale or just wait
or whatever and however the problem with
it is that in uh it is like subject to
gaming so there can be corruption you
could potentially corrupt the assessor
and uh try to get like a much lower
absolute taxation whereas the harburger
tax kind of decentralizes the aspect of
assessment by saying the owner always
has to self assess the property but then
the owner cannot control the sales
timing anymore the property can always
be bought from the owner at the current
self assessed price and so that kind of
removes this Vector of uh corruption
where we can just bribe for example the
the assessor of the property why does
this work harburger taxes why do they
work why do they create great prices it
is because uh and here you can see on
the vertical axis the cost and the risk
of a forced sale and on the vertical
axis you can see the self assessed price
if you self assess your property Y at a
very high price you will pay a lot of
like a lot of taxes but you will have a
low risk of a forc sale whereas if you
price your property at a very low cost
you will pay low and low amount of taxes
but you will have a very high risk of
forse sale so every owner in that system
essentially has an incentive by
themselves to find an optimal balance of
where they want to put the risk of a
forse sale and a and the tech cost that
they're paying and this is why har haror
texes
work how can we actually build this in
smart contract so I called this
presentation demand-based reoccurring
fees in practice so here's the practice
essentially uh it's a model called
deprecating licenses where some
collateral is being sent into a smart
contract so this could be if and we call
this collateral here uh that's the
letter c essentially and there's a price
function PT where uh T is the time that
passes and essentially the collateral
decays over time throughout a period
that we denote with Big T and so in the
charts on the right you can see this T
being 30 days so like a month and um on
on the top chart you can essentially see
that at P0 the the the price of the
license is essentially all the
collateral and then at p15 it has
essentially decayed by half
because uh 15 days is the half of um the
the entire period which is 30 days and
so the demand-based reoccurring fee
aspect here comes from the fact that
people have to rebid with their
collateral so um these spikes that
you're seeing where there's the where
there's this error saying bit was made
where it just like vert vertically jumps
up this is when a new person inserts
their collateral and then the Decay
starts again at the the collateral value
that they've put in and at a at t equal
equaling zero
basically
um what what's also important to mention
is essentially that the higher you set
the
collateral the more collateral you
absolutely pay over a time period and
this can be seen in the lower right
chart where there was one owner that set
a very high amount of collateral and so
the steepness of the depreciation is
actually much higher than the second
person that then bid it and set kind of
a lower um amount of collateral and as
you can see these periods on the lower
chart they're essentially the same
length but the first person is uh paying
a
significant a higher amount of
collateral per time essentially we can
also see this when we look at Desmos and
we essentially just draged the
collateral slider you can see that
essentially with more collateral the
steepness of the depreciation
essentially um
increases that's it that's uh
demand-based reoccurring fees in
practice I wanted to keep this very
educational so and I hope you learned
something today thank
[Applause]
you wow uh really nice talk and actually
something that I as I mentioned before
I'm extremely interested in uh so I I
put a few questions in here but the
first one isn't from me uh so uh again
let's read it out for the for the
audience let's say you buy a domain for
your startup and set the price for 10K
uh does it mean that if competitor with
de Pockets wants to buy your domain
you'd be forced to sell it for 10K in in
the harburger Tex model yes you would be
forced to sell the domain at 10K however
uh your deep pocketed competitor would
have to continuously pay a tax every
month set at the 10K price which would
make it very costly for them to keep up
paying that price so
um your competitor may also you know
your competitor may also buy like a a
domain in a tradition in the traditional
pricing model and then they would have
to just pay like 21.99 a year so I think
it's still an
improvement so how should we think about
harbater when some players have a high
risk or fear to force selling versus
those with lower risk or lower fear fear
of selling like uh homeowners versus
investment companies yeah yeah so it's
not always ideal to use harbor taxes in
all types of property classes so I think
real estate you want to have a higher
stability um in in real estate
specifically but for example you could
also um price online ads with Harbor
attex and then the trans like the
ownership transition between online
ads there's actually no harm done in the
ownership changing like we would I think
as users we probably even like ads to
change on a website and then for I think
domain names it's also a Nuance
discussion I think if you have a I don't
know you if you would price Unis
swap.com with harborer texes and they
could be like forced sales that are
instant I think this would most likely
lead to security attacks and so on so
you would have to have some kind of um
you know uh time delay function let's
say where you can announce um a a change
or whatever but so it really depends I
think um it depends on the property and
there are better cases and worse cases
to apply it got it yeah that that that
makes a lot of sense okay so this one
was for me and maybe maybe I'm not sure
if this is relevant to the research
you've been doing
but there's a lot of lot of talk these
days about uh allocative efficiency for
choosing proposers we're talking about
maybe a tester proposer separation uh so
could we use harbage or tax for choosing
proposes on ethereum and are there any
risks to doing something like this yeah
uh I I'm not super deep into like the
The Proposal I I don't know much about
it but I would say that if you're
auctioning off block space I I'm pretty
sure this could work where you have to
pay a where you have to pay a continuous
tax for you to be to have the to gr be
granted the license to create the next
block um and yeah I would imagine that
this would be pretty interesting I I I
can't think off the top of my head what
this would do but I I always tend to
think that harburger taxes and land
value tax
actually contrarily to what people think
they actually
lower um the lower prices because as if
if you're a holder that has a monopoly
on a
non-fungible good like real estate for
example you you really don't you're
really not in a rush to sell this
property you can as as we saw in my
first slide with the vacant lot I I
might wait 10 years for the price to go
up from you know $3,600 to $6,000 so
actually if we could apply Harbor taxes
or land value tax without this these
problematic uh issues of you know a
forced sale happening immediately I
think we would actually see real estate
prices and rent prices probably drop
because there would be a higher rate of
utilization in cities and uh and people
would generally just
use or or rent properties when when when
they need them right and at the moment I
think there's just no cost for uh
leaving them vacant I don't know maybe
that makes sense for you on a proposal
level uh definitely definitely no that
does I think we should have this
conversation later uh and then maybe
last question uh so again maybe related
to a previous question uh how do average
user think about harbage taxs yeah uh I
think we have to do a lot of work in
terms of ux just like maybe not
even specifically explaining or telling
people that this is haror more like work
with the the words of that defi uses
like collateral or fees I think TX is
kind of a tricky word with crypto people
I think so um yeah I I don't know I
think there