Web3 domain name services such as Ethereum Name Service (“ENS”) and Unstoppable Domains have seen a surge in interest and adoption in recent months. ENS has just become the top Ethereum project on the main NFT marketplace, OpenSea, in terms of seven-day trading volume, beating major NFT collections such as the Bored Ape Yacht Club (BAYC), CloneX and Moonbirds.
ENS is the leading decentralized domain name registration service. The platform allows users to register domains issued on the Ethereum blockchain that are programmable and to interact with other Ethereum-based decentralized applications (“dApps”). ENS domains can be used as a user’s digital identity, storing usernames, fungible and non-fungible tokens and assets, NFT avatars, and other profile data for use on dApps in the encrypted Web3 ecosystem. Since they use the ERC-721 token standard, ENS domains can also be traded as NFTs, with the vast majority of their trading activity taking place on OpenSea and LooksRare.
To date, more than 2.2 million total ENS names have been created among 546,000 unique users. In the past seven days, ENS recorded a trading volume of 2,565 ETH ($4 million) on OpenSea, which was higher than BAYC’s 1,934 ETH ($3 million), 1,767 ETH on BAYC. Otherdeed for Otherside ($2.8 million) and CLONE X’s 1,353 ETH ($2.1 million). ).
Another popular Web3 domain name service is Unstoppable Domains. Unstoppable Domains works similar to ENS but provides support for additional top-level domain server names. While ENS domains only follow the naming convention of “name.eth”, unstoppable domains allow users to purchase domain names which may include top-level domain servers such as “name.crypto”, “name.wallet”, “name.nft”, “name.dao”, “name.bitcoin”, among others.
Since the platform launched in 2019, the Unstoppable Domains community has registered over 2.5 million total domains, achieved $80 million in core sales, and the project supports over 275 tokens and 370 applications.
New Web3 applications in games, the metaverse, DeFi, DAOs, and social media require decentralized identity management and non-custodial wallets that can be seamlessly integrated into these digital environments. Domain name services are proving to be an exceptional use case that takes advantage of human-readable names, simplifying the user experience as users can store their tokens and digital assets on non-custodial wallets and interact with Web3 dApps.
Rather than copying and pasting 42-character hex strings (i.e. “0x0CCfA1c…”), representing wallet addresses for blockchains like Ethereum, Web3 domain name service providers allow users to easily send tokens and interact with human-readable name addresses such as “kyle. eth” or “kathy.crypto” from their crypto wallet of choice. ENS and Unstoppable Domains have integrated with major wallets, exchanges, and dApps, including Metamask, Rainbow Wallet, Brave Browser, Opera Browser, Trust Wallet, 1inch, Moonpay, and many others.
Once purchased and registered through the main ENS web portal, ENS domains can be traded freely between ETH wallets on the secondary market, through NFT marketplaces such as OpenSea.
The surge in domain name trading activity comes at a time when broader NFT markets are languishing. OpenSea’s monthly trading volume fell precipitously, reaching $500 million in trading volume in August, down 90% from its January trading volume of $4.86 billion. During the same period, monthly registrations of names at the ENS increased by 465%, from 67,000 new registrations in January to 379,000 in July.
It should also be noted that domain name registrations are not exclusive to Ethereum. There are similar services that also support some of Ethereum’s top competitors.
“I’m very excited that NFT domains can become your unique name for Web3, empowering you to own your digital identity. Going forward, your NFT domain will allow you to carry your reputation across all your favorite apps, games, and metaverses, all without giving up control of your data. – Sandy Carter, SVP and Channel Manager, Unstoppable Domains
Prospects and implications
Investors and speculators have bought up popular domain names as potentially lucrative investments. The hope is that existing businesses and brands will want to acquire their associated domain name if they seek to establish a presence within Web3. Recently, an anonymous buyer placed a bid for $1 million for the ENS domain “Amazon.eth”. This offer came shortly after “Samsung.eth” and “Starbucks.eth” sold for 60 ETH (~$90,0000).
This activity is reminiscent of the domain name squatters of the dot-com era of the 1990s, in which speculators hoarded popular keywords and branded domain names in hopes of flipping them for a profit. For example, the proprietary Ethereum address of “nike.eth” has accumulated 131 ENS domain names including “sony.eth”, “coke.eth”, “strawberry.eth”, and “nose.eth”.
As is typical with many Web3 projects, ENS has released its own fungible governance token, called ENS. The ENS token was first launched in November 2021 and provided a retroactive airdrop to .eth holders, comprising 137,000 accounts at the time. The token is used to submit and vote on governance proposals, with a proposal requiring the support of 100,000 tokens (or 0.1% of the total supply) before being put to a vote. These proposals may affect ENS domain pricing, cash management, and other protocol settings.
One such proposal increased the starting price of the temporary premium domain name from $2,000 to $100,000 when a name expires. This change prevented bots from quickly buying premium domains when they expired, before the owner had a chance to renew their registration. Another proposal that was successfully executed awarded 200,000 ENS tokens to the Protocol Guild, for the past and ongoing work of these top contributors to the ENS Protocol. By conferring governance rights, ENS tokens act similarly to shareholder rights, which act as the primary driver of the token’s value.
The dramatic increase in .eth domain name registrations has led ENS to outperform ETH over the past three months by more than 40%.
It remains to be seen how valuable programmable, censorship-resistant, and decentralized domain names will be, as well as whether they will truly serve as the primary means for users to manage their digital identities. Platforms like ENS and Unstoppable Domains offer unique advantages over traditional DNS by providing stronger ownership rights and being less susceptible to security vulnerabilities. This will have a direct impact on the value of tokens such as ENS.
For investors expressing the view that Web3 domain name services will provide key infrastructure for broader user growth and adoption within Web3, there are several other ways to market themselves. Similar to the Dotcom era, investors can preemptively buy premium domains directly that they think will be useful in the future. A safer game may be to buy the tokens from the underlying platforms themselves, such as ENS.
Competing domain name services such as Unstoppable Domains, Avvy Domains, and Space ID have yet to launch their own token, but they may choose to employ a similar strategy of retroactively airdropping tokens to existing domain holders. In the case of ENS, the average token reward for existing users was around $15,000 at the time of the airdrop.
In order to determine which domain name service provider to support, investors can consult the list of applications and partners supported by each of these platforms. Domain name service providers that can achieve the highest quality and number of application integrations will deliver the most utility and network efforts to become the norm in the Web3 space.
The potential utility of decentralized domain names for participants within the Web3 ecosystem is not yet fully realized. However, it is clear that users still face significant friction in fully engaging with the emerging Web3 crypto-economy, due to user experience and security issues. Decentralized domain name providers solve at least one problem by making it easier to identify and interact with other users in the Web3 world.