IDN domains are not really useful for most people. But there is high risk of phishing from domains that mimic popular sites.
It would be great if you can block all IDN domains in the settings of pihole.
All IDN domains start with
Dnsmasq can be compiled to support internationalisation. To do this, the make targets “all-i18n” and “install-i18n” should be used instead of the standard targets “all” and “install”. When internationalisation is compiled in, dnsmasq will produce log messages in the local language and support internationalised domain names (IDN). Domain names in /etc/hosts, /etc/ethers and /etc/dnsmasq.conf which contain non-ASCII characters will be translated to the DNS-internal punycode representation. Note that dnsmasq determines both the language for messages and the assumed charset for configuration files from the LANG environment variable. This should be set to the system default value by the script which is responsible for starting dnsmasq. When editing the configuration files, be careful to do so using only the system-default locale and not user-specific one, since dnsmasq has no direct way of determining the charset in use, and must assume that it is the system default.