Web3 domain name services, such as the Ethereum Name Service (“ENS”) and Unstoppable Domains, have seen a huge surge in interest and adoption in recent months. ENS has just become the largest Ethereum project in the leading NFT market, OpenSea, in terms of trading volume for seven days, beating core NFT groups such as Bored Ape Yacht Club (BAYC), CloneX and Moonbirds.
ENS is the leading decentralized domain name registration service. The platform allows users to register issued domains on the programmable Ethereum blockchain and interact with other Ethereum-based decentralized applications (“dApps”). ENS domains can be used as a user’s digital identity, storing usernames, replaceable and non-replaceable tokens and assets, NFT avatars, and other profile data for use across dApps in the encryption-enabled Web3 ecosystem. Since they use the ERC-721 token standard, ENS ranges can also be traded as NFTs, with the vast majority of their trading activity occurring on OpenSea and LooksRare.
To date, more than 2.2 million total ENS names have been created out of 546,000 unique users. In the past seven days, ENS has generated 2,565 ETH ($4 million) trading volume on OpenSea, which is higher than BAYC’s 1,934 ETH ($3 million), Otherdeed’s Otherside’s 1,767 ETH ($2.8 million), and CLONE’s X of 1,353 ETH ($2.1 million).
Another popular Web3 domain name service is unstoppable domains. Unstoppable Domains operate similar to ENS but provide support for additional TLDs. While ENS domains only follow the “name.eth” naming convention, unstoppable domains allow users to purchase domain names that can include top-level domain servers such as “name.crypto”, “name.wallet” and “name. nft”, “name.dao”, “name.bitcoin”, among others.
Since launching the platform in 2019, the Unstoppable Domains community has registered over 2.5 million total domains, handled $80 million in initial sales, and the project supports more than 275 tokens and 370 apps.
Web3’s new applications in games, metaverses, DeFi, DAOs, and social media require decentralized identity management and unrestricted wallets that can be seamlessly integrated into these digital environments. Domain Name Services has proven to be a use case for a hack that takes advantage of human-readable names, simplifies the user experience as users can store their tokens and digital assets in vulgar wallets and interact with Web3 dApps.
Instead of copying and pasting 42-character hexadecimal strings (eg “0x0CCfA1c…”), which represent wallet addresses for a blockchain like Ethereum, Web3 domain name service providers enable users to easily send tokens and interact with name addresses that they It can be read by a human as “kyle”. eth” or “kathy.crypto” from a crypto wallet of their choice. ENS and Unstoppable Domains are integrated with leading wallets, exchanges and applications 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 freely traded between ETH wallets on the secondary market, via NFT marketplaces such as OpenSea.
The increase in domain name trading activity comes at a time when the broader NFT markets have been weakening. OpenSea’s monthly trading volume has fallen sharply, reaching $500 million in August, a 90% drop compared to January’s $4.86 billion. During the same period, monthly ENS name registrations increased 465% from 67,000 new registrations in January to 379,000 in July.
It’s also worth noting that domain name registrations are not exclusive to Ethereum. Similar services also support some of Ethereum’s main competitors.
“I am very excited about how NFT domains can become your single name for Web3 that allows you to own your digital identity. In the future, your NFT domain will allow you to spread your reputation across all your favorite apps, games and metaverses, all without giving up control of your data” . – Sandy Carter, Senior Vice President and President of Channel, The Unstoppable Areas
Expectations and implications
Investors and speculators have bought popular domain names as potentially profitable investments. The hope is that existing companies and brands may want to have their associated domain name if they seek to establish a presence within Web3. Recently, an anonymous buyer made a $1 million bid for the ENS domain “Amazon.eth”. The offer came shortly after Samsung.eth and Starbucks.eth each sold for 60 ETH (~$90,000).
This activity is reminiscent of the domain name campaign of the dotcom bubble era in the 1990s, where speculators were hoarding keywords and domain names of popular brands in the hope of flipping them for a profit. For example, file Ethereum address ‘nike.eth’ has accumulated 131 ENS domain names including the domains ‘sony.eth’, ‘coke.eth’, ‘strawberry.eth’ and ‘nose.eth’.
As is usual in many Web3 projects, ENS has launched its own replaceable management token, called ENS. The ENS token was first launched in November 2021 and offered retroactive airdrops to .eth holders, which at the time held 137,000 accounts. The token is used to present and vote on governance proposals, with a proposal requiring 100,000 tokens (or 0.1% of the total supply) to be supported before being put to a vote. These proposals may affect ENS domain pricing, treasury fund management, and other protocol parameters.
One of these proposals increased the starting price of a temporary premium domain name from $2,000 to $100,000 when the name expired. This change prevented bots from quickly buying premium domains when they expire, before the owner had a chance to renew their registration. Another successfully implemented proposal of 200,000 ENS tokens has been awarded to the Protocol Syndicate, for the past and ongoing work of these key ENS protocol contributors. By granting governance rights, ENS tokens function similarly to shareholder equity, which acts as a primary driver of the token’s value.
The massive increase in .eth domain name registrations has caused ENS to outperform ETH over the past three months by more than 40%.
It remains to be seen how programmable, censorship-resistant, and decentralized domain names will be valuable, as well as whether they will truly serve as the primary way for users to manage their digital identities. Platforms such as ENS and Unstoppable Domains offer unique advantages over the traditional DNS by granting stronger ownership rights and are less prone to security breaches. This will directly affect the value of tokens such as ENS.
For investors expressing the view that Web3 domain name services will provide a key infrastructure enabling broader user growth and adoption within Web3, they have two other ways to gain exposure. Similar to the Dotcom Era, investors can proactively buy tokens that they believe may be valuable in the future. A safer game would be to buy tokens from the same platforms, such as ENS.
Competing domain name services such as Unstoppable Domains, Avvy Domains, and Space ID have not yet released their own token, but may choose to use a similar strategy to retroactively drop tokens for 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 decide which domain name service provider to support, investors can review the list of applications and partners supported by each of these platforms. Domain Name Service Providers that are able to achieve the highest quality and the highest number of application integrations will provide the greatest benefit and network efforts to emerge as the standard in the Web3 space.
It will provide decentralized domain names for potential facilities for participants in the Web3 ecosystem not yet fully realized. However, it is clear that users still face significant friction in fully dealing with the emerging Web3 crypto economy, due to issues with user experience and security. Decentralized domain name providers solve at least one pain point by making it easier to get to know and interact with other users in the Web3 world.