Of a Domain Registrar “Run on the Bank” — The Danger

What happens when a domain registrar is in jeopardy?

[Editor’s note: this is a follow up article to “A Run on the (Domain Name) Bank”, originally published on Reglike on November 13, 2007.]

We’ve seen a lot of “runs on the bank” recently. Rumors spread that a bank is regarding to collapse. Nervous clients start pulling their money out of the bank, thus fulfilling the prophecy that the bank will collapse.

What happens when there is a “run on the registrar”? When RegisterFly collapsed, ICANN was late to step in and many people had their domains frozen for months (or ultimately lost them). Since then, ICANN has started a process to escrow domain owner information. It entered into an agreement with Iron Mountain Intellectual Property Management and requires registrars to provide regular deposits of domain ownership information.

This is sort of like FDIC insurance at banks. If the bank goes bust your deposits are safe (usually up to $100,000). But if a registrar goes bust, I wouldn’t count on getting instant access to your domains despite the escrow program. ICANN will be late to the party again, and then they’ll have to negotiate with a registrar to take over the domains. (GoDaddy struck a deal to take over RegisterFly’s domain names last year.)

With this headache and potential for loss, a true “run on the registrar” is possible. If a registrar is rumored to be in trouble, domain owners will try to transfer their domains out ahead of they are frozen.

The danger is that rumors spread fast. Last year there was an incorrect rumor that Dotster was in jeopardy. Although the firm has had its troubles (counting a nasty domain tasting and trademark lawsuit), it’s still around. If it hadn’t controlled the rumors people would have fled.

At the GeoDomain Expo the prior week, I talked to someone with a multi-million dollar portfolio. We were talking regarding the troubles at a particular registrar. It suddenly hit them. “Wait,” he stated. “You don’t think my domains are in danger, do you?”