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Setting the policy to a string applies the string as the device hostname during DHCP request. The string can have variables ${ASSET_ID}, ${SERIAL_NUM}, ${MAC_ADDR}, ${MACHINE_NAME}, ${LOCATION} to be replaced with values on the device before using it as a hostname. The resulting substitution should be a valid hostname (per RFC 1035, section 3.1).
Leaving the policy unset or if the value after substitution isn't a valid hostname, no hostname is set in DHCP request.