To be honest, the actual reason for the revoking of the domain name is what we expected: it violated local law. vb.ly advertised itself as a sex-friendly URL shortener, and that just doesn't go over well under Libyan law. Here's an excerpt from NIC.ly's statement:
In reference to the vb.ly incident: the domain’s purpose (proclaimed by its registrants themselves) was to serve as a ‘sex friendly URL shortener’, mainly for adult uses. This means that vb.ly had a policy different than the other URL shorteners, not using filters and encouraging the use of this service for creating links to adult sites and other “NSFW” links, thus placing vb.ly by definition in the porn/adult site category.read and re-read the registrar's rules.
This use was deemed as unacceptable by our local internet community, regardless of whether or not the site hosts adult material or redirects traffic to 3rd party sites
That may be true, but hey, it's Libya. What did you expect?
There's also NIC.ly's explanation of their decision to limit domain names with less than four characters to those with a Libyan presence.
As to the decision to keep the registration of domain names shorter than 4 symbols long under .ly only for entities with a local Libyan presence, this comes in accordance with NIC.ly’s concern that the rise in popularity of URL shorteners from abroad taking up all these names has deprived locals of their right to register the important 3 letter abbreviations of their various businesses and interests. We as a Registry would prefer seeing art.ly used for a website about Libyan art for instance, or lda.ly used by the Libyan De-mining Association, rather than adding more URL shorteners under our National TLD.The question is: will Libya limit this to new registrations, or when registrations come up for renewal, will they simply take them back then? Or worse, will they simply revoke them? Considering one of the most popular URL shorteners is bit.ly, that might cause quite a few broken links.
It's worrisome and more than a few are concerned. Even Mitt Romney decided to opt out of .ly; he's switching to mi.tt (Trinidad and Tobago).