Royalty program terms when a TLD changes hands

A sale of an onchain TLD moves one token from one wallet to another. The token is the easy part. What travels less obviously is the commercial arrangement that sits beside it: the terms on which the registry pays the holder a share of the fees for names registered under that TLD. Those terms are not written on the token, and two TLDs that look the same on a block explorer can be held under different ones.

On Freename, the difference has a precise shape. Some TLDs were registered under earlier terms in which participation in the royalty program is included for life. Others sit under terms in which participation carries an annual cost that the registry sets. Which of the two applies to a given TLD, and whether the earlier arrangement survives a change of holder, is a question only the registry can settle. It is settled before closing, not after.

This article is for the holder preparing a sale and for the adviser on the other side of the table. It explains the two regimes, who must ask what and when, how to read the answer, and how the answer finds its way into the price and the contract. It contains one worked example with assumed figures, and it never states the amount of the annual cost, because that figure belongs to the registry and can change.

What the royalty program pays, and what it leaves out

An onchain TLD is a top-level name, such as .yoursector, recorded on a blockchain as a token held in a wallet rather than delegated in the DNS. On Freename, the holder of that token is the only party who can issue names under it, such as name.yoursector, and the holder decides what those names cost. The holder may also price names differently from one another.

The royalty program is the mechanism that turns registrations by third parties into income for the holder. When someone registers a name under the TLD through the registry, the holder receives a share of the registration fee. The registry advertises that share as reaching up to half of the fee. The exact share, and the conditions under which the program becomes active for a TLD, depend on the terms the registry applies at the time.

Three limits matter in a sale, and each is easy to overlook.

First, the royalty is a share of registration fees. This article does not treat renewals as a source of royalty, and neither should a projection you put in front of a buyer.

Second, the program is something a holder takes part in. It is not an automatic property of the token. A TLD on Freename has no annual renewal fee, so the holder keeps the TLD without paying anything each year. Taking part in the royalty program is a separate matter with its own cost regime.

Third, the program pays on registrations that happen. A TLD under which no one registers a name earns nothing from it, whatever its terms. The regime decides what participation costs. It does not create demand.

Two regimes for the same token

The public record of a TLD shows who holds it and when it was created. It does not show the commercial terms that the registry attached to the registration. Those terms come from the registry’s own records and from the documents the holder received when the TLD was registered.

The table sets out the two regimes as a seller and a buyer need to see them.

Read the table row by row and one thing stands out: the only row that separates the two regimes is the cost of taking part. The TLD is held without a renewal fee in both. The right to issue names belongs to the holder in both. The income is a share of registration fees in both. What changes is whether the holder carries a recurring charge in exchange for that income.

That makes the last row the one that carries weight in a negotiation. A holder under the earlier terms has an arrangement that a newer registrant cannot obtain by registering a fresh TLD. Whether that arrangement is attached to the TLD or to the person who registered it is the whole question. If it follows the TLD, the buyer acquires it. If it was granted to the original registrant, the buyer may start under the terms in force at the time of transfer. Nothing in the token tells you which.

Why the seller cannot answer this alone

A seller usually believes they know their terms. They registered the TLD, they remember what the page said, they may have a confirmation message. That belief is honest and it is not enough for a closing, for three reasons.

The seller knows what applied to them. They do not know what will apply to someone else. A term described as lasting for life can mean the life of the TLD or the duration of one holder’s account. Only the party that wrote the term can say which it meant, and it may have refined its position since.

The seller’s documents may be incomplete. A TLD registered some time ago may have passed through more than one version of the registry’s terms, or through a previous transfer. A confirmation message that mentions the program does not always state its duration or its transferability.

The seller has an interest in the answer. That is the reason a careful buyer’s adviser will not accept a seller’s reading as the last word, and a careful seller will not want them to. A statement the seller cannot back with the registry’s own confirmation becomes a liability the moment it is written into a contract.

So the rule for both sides is the same. The seller states what they understand their terms to be and produces what they have. The registry confirms, in writing, what applies to the TLD and what will apply to the new holder. The contract relies on the second, not the first.

What a holder assembles before the question is asked

A registry can only answer a precise question. A vague request produces a general reply that points to the public terms, which is the one thing both parties could already read. The holder’s work, well before a buyer appears, is to assemble a file that lets the registry answer about this TLD and no other.

1. Fix the identity of the TLDNote the exact string, the chain on which it is recorded and the link to its public record. The creation date shown there is the anchor for every later question about which terms applied.
2. Gather the registration documentsCollect the order confirmation, any message from the registry about the program, and a copy of the terms as they were presented when the TLD was registered, if you kept one.
3. Record the program's statusWrite down whether the program is active for the TLD, since when, and what you did to activate it. If you never activated it, say so plainly.
4. List what the program has paidPrepare a simple statement of registrations by third parties and the share you received, period by period. Keep names you issued to yourself in a separate list.
5. Write the question for the registryAsk which terms apply to this TLD, whether they continue for a new holder after a transfer, and what the new holder must do, if anything, to keep the program active.
6. Keep the reply with the fileStore the registry's answer with its date and the address of the account it was sent to. It will be shown to the buyer's adviser under the NDA.

On timing: a holder who asks the registry only once a buyer is waiting puts the timetable of the sale in a third party’s hands. A holder who asks during preparation arrives with an answer, or at least with a question already open. If you are measuring how prepared your TLD is, the TLD Readiness Score is a quick way to see what else the file lacks.

On the fourth step: a statement of royalty income that mixes third-party registrations with names the holder issued to itself misleads the reader, even without intent. The buyer’s adviser will compare the statement with the public record, where every name issued under the TLD and the wallet that holds it can be seen. A statement that matches the record builds trust in everything else in the file.

Four answers the registry can give, and what each means

The parties tend to imagine a yes or a no. In practice a reply can take several forms, and each one leads to a different conversation. The table is a reading aid, not a description of how any registry words its replies.

The first answer needs no comment. The second changes the income line and nothing else. The TLD is the same, the names under it are the same, the right to issue is the same. The buyer will carry an annual cost if it wants the program, and it will weigh that cost against the registrations it expects. For a TLD with steady third-party demand this is a modest adjustment. For a TLD with none, it may mean the buyer never activates the program.

The third answer needs the most care, because it adds a task with an owner and a date. If continuity requires a request by the seller, an acceptance by the buyer, or an action in the registry’s account before or after the token moves, someone must do it and the sequence matters. An arrangement that could have been preserved can be lost by transferring first and asking second.

The fourth answer is the uncomfortable one. A registry may reply in general terms, or not within the timetable of the deal. The parties then have a choice between waiting and closing on an assumption. The prudent assumption is the less favorable one for the buyer: price the TLD as if the earlier terms do not pass, and agree in advance what happens if the registry later confirms that they do. That keeps the sale from depending on an answer nobody controls.

A worked example: what the regime changes in one year of income

The following is an illustration with assumed figures. It is not a forecast and it does not describe any real TLD.

Assume a sector TLD, .yoursector, under which third parties register 600 names in a year. Assume the holder has set a single registration price of USD 25 for those names. Assume the holder’s share of each registration fee is 50 percent, which is the maximum the registry advertises; the share that applies to a real TLD depends on the registry’s terms and activation conditions. Renewals are not counted. The annual cost of the royalty program is not included in any figure below.

Registration fees for the year come to 600 times USD 25, which is USD 15,000. The holder’s share at 50 percent is USD 7,500. The other USD 7,500 of the fees is not paid to the holder.

Registration fees paid by registrantsUSD 15,000

Holder's royalty shareUSD 7,500

Rest of the fees, not paid to the holderUSD 7,500

Illustrative figures from the stated assumptions. The annual cost of the royalty program is not included.

Now apply the two regimes to the same year.

Under the earlier terms, if the registry confirms they apply to the new holder, the USD 7,500 is the holder’s royalty income for the year with no program cost to set against it.

Under the terms with an annual cost, the holder’s royalty income is the same USD 7,500, less whatever the registry charges for participation that year. This article does not state that amount. The buyer’s adviser obtains it from the registry and subtracts it.

Three lessons come out of an example this small.

The regime does not change the top line. Registrations, price and share are identical in both cases. A seller who presents the earlier terms as doubling the value of the TLD is overstating it; a buyer who treats them as worthless is understating it. The difference is one recurring cost, year after year.

The difference matters more when registrations are few. Take the same assumed price and share with fewer names registered, and the royalty shrinks in proportion while a fixed annual cost does not. For a TLD with thin third-party demand, the regime can decide whether participation is worth having at all. For a TLD with strong demand, it is a line among others.

The assumptions carry more risk than the regime. Whether 600 names are registered next year under a new holder, at that price, is far less certain than which terms apply. A buyer’s adviser should spend more time testing the registration count against the public record than arguing about the program. To test your own assumptions with different counts and prices, the Subname Revenue Calculator does the arithmetic.

How the regime enters the price

The royalty regime is one input to a valuation, and usually not the largest. The string itself, its fit with a buyer, the creation date and the names already issued tend to weigh more. The regime still deserves a clear place in the reasoning, because it is one of the few inputs that can be confirmed as a fact rather than estimated. The broader method is described on the page about how a valuation is built.

For a buyer who will run the TLD as a namespace open to third parties, the reasoning is direct. The earlier terms remove a recurring cost for as long as the buyer holds the TLD. The buyer can estimate what that is worth to it by asking the registry what participation would otherwise cost, and by deciding how many years it expects to hold. That estimate belongs to the buyer. A seller who does not know the buyer’s horizon cannot compute it for them.

For a buyer who wants the TLD for its own use, the regime may be worth little. An organization that acquires the TLD matching its name and issues names only to itself and its affiliates is not buying a stream of registration fees. It may still value the option to open the namespace later, and that option is more comfortable under terms with no recurring cost. But it is an option, and it should be priced as one.

For the seller, the practical consequence is restraint. Present the regime as a fact with its confirmation attached, show the income the program has paid, and let the buyer value it. Avoid a headline multiple applied to royalty income. With thin history and assumed registration counts, such a multiple gives a precise look to a number that is mostly assumption.

Writing the regime into the sale documents

Contract terms are for the parties’ own counsel, and the law that governs a sale varies by country. What follows is a description of the points that usually need a home in the documents, not a draft.

The seller’s statement. The seller states which terms it understands apply to the TLD, whether the program is active, and that the documents it has produced are complete and unaltered. This is a statement of the seller’s knowledge. It does not promise what the registry will do.

The registry’s confirmation as a condition. Where the buyer is paying for the earlier terms, the parties can make the registry’s written confirmation a condition of closing. If the confirmation does not arrive, or says the opposite, the buyer is not obliged to close at that price.

An agreed alternative price. Parties who do not want the sale to fail on this point can agree two prices in advance: one if the earlier terms pass, one if they do not. The registry’s answer then selects the price, and no one renegotiates under time pressure.

Any step the registry requires. If the registry’s reply describes an action needed for continuity, the contract names who performs it, when in the sequence, and what happens if it is not done.

Cooperation after closing. The seller agrees to answer the registry’s questions and to confirm the transfer if the registry asks, for an agreed period. The buyer cannot always complete the registry’s process without the former holder.

Names the seller holds under the TLD. Names the seller issued to itself can move with the TLD by agreement, and the contract says which ones. Names registered by third parties remain with those third parties, and the buyer takes the TLD with them in place.

A point of scope: none of these clauses can bind the registry. The registry is not a party to the sale. Its terms can change for all holders, including in ways that affect a program a buyer counted on. A contract between seller and buyer allocates the risk of what is known at closing. It does not freeze the future.

Where confirmation sits in the closing sequence

The order of events protects the arrangement more than any clause. A simple sequence works for most sales.

The seller’s file and the question to the registry come first, during preparation. The buyer’s adviser sees the file under the mutual NDA once the parties are in discussion, and may put follow-up questions to the seller. The registry’s written reply arrives and both sides read it. Price and documents are then settled on the basis of that reply. Only after that do funds and token move, through onchain escrow, so that neither party performs before the other.

The mistake to avoid is treating the royalty question as post-closing housekeeping. Once the token is in the buyer’s wallet, the seller is no longer the holder and may no longer be in a position to make a request the registry would have accepted the day before. If the registry’s answer was that continuity needs a step, that step is placed in the sequence before or at the transfer, exactly as the registry describes it.

A second, smaller point concerns the account. The token lives in a wallet; the relationship with the registry may also involve an account through which the program is managed and paid. The buyer’s adviser asks how the program is administered for the new holder, to which wallet or account the share is paid, and what the buyer must set up to receive it. A buyer who closes without that information may hold the TLD and find the program inactive.

The next step for each side of the table

If you hold a TLD and expect to sell it, start the royalty file before you start the sale. Find your registration documents, write down the program’s status, and send the registry the three questions: which terms apply to this TLD, whether they continue for a new holder, and what the new holder must do. A dated written reply in your file is worth more to a serious buyer than any projection.

If you advise a buyer, ask for that reply in your first document request. Where it does not exist, ask the seller to obtain it and build your price on the less favorable reading until it arrives. Recompute the income line yourself from the public record of names issued, with registrations only, and subtract the cost of participation that the registry gives you. Then ask the registry how the program is activated for a new holder: it is the first thing to verify after the transfer, before any work on post-transfer activation.

A holder who wants a buyer found can give Hush Partners a sell-side mandate, and a single named partner then stays with the file from the opening note until closing. The royalty file described here belongs in the preparation of any sale, with or without a desk. The answer itself always comes from the registry.

Questions people ask

Does a buyer have to take part in the royalty program?

A buyer who does not want third-party registrations has no reason to. The TLD itself is held without an annual renewal fee whether or not the holder takes part. A buyer in that position should still learn which terms apply, because the option to open the namespace later has a different cost under each regime.

What if the TLD is moved between two wallets of the same organization?

Treat it as a question for the registry in the same way. A move between wallets changes the holder of record even when the organization behind both is the same. Ask before the move whether the terms are tied to the TLD, to the wallet or to an account, and move only once you have the answer.

Can the registry change the program after I buy?

A registry sets its own terms and can revise them. A confirmation obtained before closing tells you what applies at that moment and what the registry has committed to for the TLD. It is worth reading how the confirmation is worded, and asking your counsel what weight it carries under the law that governs it.