Could a domain registrar face a “run on the bank”?
Shockwaves hits the financial world yesterday when an analyst said financial institution Etrade (NASDAQ: ETFC) may go bankrupt. This creates a so-called run on the bank, in which people pull their money out of savings and brokerage accounts for fear of losing the money. Deposits and brokerage accounts are insured, but that doesn’t mean people will get their money immediately in case of failure. NetBank, one of the oldest internet banks, recently went belly-up. FDIC-insured accounts were transferred to ING direct.
But what if a domain registrar is rumored to go bankrupt? Would people start transferring their domains? This would precipitate the failure of the registrar.
There’s reason to be scared. Anyone who had their names locked up in the RegisterFly fiasco knows what I mean.
A few months ago rumors started flying that Dotster was in financial trouble. The rumors were quelled, but that didn’t stop me from at least considering which valuable domains I had there and if I should transfer them.
In theory, ICANN ‘insures’ domains. But that assumes the register that loses its accreditation had good record keeping. ICANN is taking steps to keep registrant data in escrow in case this happens.
In the meantime, owners of large domain portfolios should consider starting their own registrar.
Dietmar Stefitz says
I don’t think you are going to lose the domain if the Registrar goes out of Business.
Maybe you lose the registration fee. But there should be more control for Domain Name owners.
Patrick McDermott says
Dietmar,
Yes you certainly can lose your domain(s) if a Registrar gets in trouble AND becomes unresponsive.
During the RegisterFly fiasco domain owners would pay RegisterFly to renew expiring domains butthe domains were nort renewed.
Since it was usually difficult and often impossible to get Auth Codes, you could not transfer your domains out.
There was a work around that someone discovered but most RegFly customers did not know it.
Also RegFly often changed the WhoIs on their customers domains to all RegFly info.
It was a nightmare …and many domains were lost.
Patrick
Denis says
Cash flow is what kills a business. A “run on bank” scenario doesn’t seem that likely. Registrars don’t give any money back when domains are transferred out. The money you paid to register or renew is the registrar’s.
Mass transfers boost the cash receipts of other registrars and slowly cut off the receipts of the one rumored to be shaky.
Shady practices excepted, there would be months of arrears and layoffs before a registrar became insolvent and filed for bankruptcy. And bankruptcy isn’t always terminal.
Escrow is a good idea, nonetheless. So is responsible reporting. This article will unfortunately revive the (unsubstantiated) rumors of last July.