Ethereum Name Service (ENS)

A Web 3.0 Domain Name Service

Business model

DNS, or the domain name service, is a database in which internet domain names are located and translated into Internet Protocol (IP) addresses. Normally, when we want to enter into a website, for example, “google”, we type “google.com” into a web browser instead of the IP address “8.8.8.8” or “8.8.4.4”。A DNS server behind maps a domain name to the corresponding IP address。DNS could be taken as the phone book of Internet. Users do not need to remember the phone number(IP address) of anyone. Instead of that, they just need to remember names(domain names). Any number linked to a name could be found through this phone book easily.

 

Ethereum Name Service(ENS) has similar goal to DNS. ENS maps human-readable addresses like “Vgodgreat.eth” into a block chain address like

“0x4381FBC7DB74E22B3253559028997Ee1eF5Dc66C”, a complicated string nobody wishes to remember.

 

ENS is deployed on Ethereum main net. However, ENS aims to afford name resolution for all Web3.0 resources including blockchain addresses and other distributed content.

 

The profiting model of ENS is domain name lease. The rent fee of a 3-length string is $640 worth ETH per year. The rent fee of a 4-length string is $160 worth ETH per year. The rent fee of a ETH domain name whose string length is above 5 is $5 worth ETH per year.

 

Key Metrics

 

Business Development

For now, 1.43 million domain names of ENS have been created, including .eth domain names and traditional domain names such as .com, .io, .app and so on.

The number of owners of ENS domain names are 423k as of the time of writing. Programs integrated into ENS service are 503. The floor price of any ENS domain name is 0.002ETH as of the time of writing.

7 Days Price Change of ENS Domain Names  (Image Source: NFTGo.io)

 

Paradigm, a very famous Web 3.0 investment firm, whose domain name(Paradigm.eth) was sold at 420 WETH on October 10, 2021, the most ever high of all domain names. Some domain names of famous companies have been squatted at a relatively high price, such as Amazon.eth(33ETH), nba.eth(32ETH), pornhub.eth(30WETH).

Top 10 High-Priced Domain Names of ENS(Image Source: NFTGo.io)

 

It is observed that the most popular domain name type of ENS now is number domain name. For example, 3 digital number domain name like “945.eth” or 4 digital number domain name like “6688.eth”. Over the past 7 days, among only 8 ENS domain names sold above 6.5ETH, a half of them are number type domain names. Particularly, integers or duplicate numbers are more high-priced. “1000.ETH” was sold at a price of 33ETH, and “555.ETH” was sold at a price of 55.5ETH.

Top 10 sales of ENS over 24 hours (Image Source: NFTGo.io)

 

ENS has been connected to almost all common digital wallets now. Users could buy domain names directly through Trust Wallet, Metamask, Coinbase Wallet, or something like these. In terms of Web 3.0, since it is a distributed system, everyone plays the role of net node. As a result, everyone needs a wallet address to symbolize their decentralized status and to be visited. However, being similar to Web 2.0, nobody wishes to remember a complicated string address. As a result, the need of domain names which can simplify digital addresses are certainly huge. It is reasonable to believe that domain name service of Web 3.0 has a great potential for development based on several billion users in the future.  

 

Recently, ENS printed a hard copy of ENS constitution, along with 48,823 signers who provided a ENS name. This hardcover “phone book” is sold for 114.39 dollars, and a beautiful no-expense-spared limited edition of 50 copies are also available. You can also download a free digital edition if you do not wish to pay for it.

 

Technological Framework

Architecture of ENS has two components: the registry and the resolver. Registry is a smart contract manages a hierarchical database which maintains a list of all domains and sub domains. Three critical pieces of information are stored for every domain name, the owner of the domain, the resolver for the domain and the TTL(time to live) for every recorded request under this domain. Resolver is an external contract, which is responsible for translating the domain name into a digital address. Certainly, the translation of resolver is bidirectional, digital address could also be mapped into a domain name when somebody applies for one.

Architecture of ENS (Image Source: https://docs.ens.domains/)

 

Translating a domain name into a digital address has two steps:

● Firstly, when a domain name is requested, ask registry which resolver is responsible for it. Registry will return the corresponding resolver.

● Secondly, ask that resolver to return the digital address for your requested domain name.

 

Below is an example of resolving a name(provided by the ENS official website),

Resolving a name in ENS (Image Source: https://docs.ens.domains/)

 

ENS Token Distribution

ENS Token Distribution(Image Source: ens.mirror.xyz)

 

Community Treasury: 50% of ENS tokens are allocated to the DAO. Among these 50% tokens, 10% of them had been allocated to the DAO when then main net of ENS launched, the remaining would be released over the next four years since launch. The tokens attributed to the DAO are available for any development and growth initiative of ENS.

 

Airdrop to users: 25% of the total supply are allocated to the .eth domain owners. Distribution is based on how long an address owns a domain name. Basically, for an address owning at least one .eth name when an air-drop happened, # of days holding this name*0.27 is the air drop for a .eth name. If between two air drops an address abandoned a .eth name, air drop for this name will be # of days until the expiration of this name*0.062. Notably, for an active address, the airdrop features a 2X multiplier in addition to the calculation mentioned above. The total time for calculating # of days an address holding a name will not be longer than 8 years.  

 

Contributors: 25% of the total supply are allocated to the contributors. The core team including core contributors, launch advisors, external contributors, translators, select integrations, root key holders, and more, received 23.625% of the total supply. Tokens for core contributors and launch advisors would be locked up for 4 years since launch. The remaining 1.375% were set aside for future contributors and active participants in the ENS Discord. Notably, since there are no investors for ENS program, no tokens are allocated to investors.

 

 

 

Value and Growth of ENS

Vitalik states that ENS continues to be very valuable and important ethereum infrastructure。

 

Actually, unlike most of the blockchain programs, ENS can achieve a sustainable and consecutive revenue. The registration and renewal revenue of ENS per month since Nov 2021 had been always above 3 million dollars. In the May of 2022, the registration/renewal revenue of ENS hit a record high of over 9 million dollars. Surprisingly, on 26 April, daily sales of ENS is 1.2 million dollars followed by 1.1 million dollars revenue generated on the next day.

Monthly Revenue of ENS(Image Source: dune.com)

 

As we know, Web 3.0 application for now is just at a start-up point. Web 3.0 nodes deployed now fall far short of the Web 3.0 development needs in the future. Thus, for a long term period, number of Web 3.0 nodes will show a stable growth tendency. Once the explosion of Web 3.0 comes one day, number of global Web 3.0 nodes will have a growth spurt within a very short period. It can be observed that the major portion of ENS revenue derives from new domain registration, and only a small portion derives from the renewed fees. This is related to the fact that existing Web 3.0 nodes are too little to contribute significant renewal revenue. Instead of that, new increasing Web 3.0 addresses drive the revenue up. Conclusively, for a long period, revenue growth of ENS will increase as the ongoing deployment of global Web 3.0 nodes. Once the deployment of Web 3.0 nodes has been mature globally, even though ENS may lose a large part of its new registration fees, it has owned sufficient existing nodes to contribute renewal fees as a substitution at that time. As a result, it is reasonable to have a strong confidence on the value growth of ENS. The profiting expectation of it is much more definite than 80% of the existing blockchain programs.

 

 

Another import fact should be taken into consideration when evaluating the growth expectation of ENS is that other domain names have been integrated into ENS only to a relatively small extent. Technically, all the domain names of Web 2.0 could be integrated into ENS like .com or .org and something else. To import a DNS Domain name to a .eth one, just searching for your DNS domain name on the ENS manager APP and then follow the import guidance, as easy as a cookbook. Additionally, such an import does not charge any fees. It can be expected optimistically that as the development of Web 3.0 and ETH 2.0, maybe a large part of Web 2.0 domain names like“google.com” or “ un.org” need to import their DNS domain name into ENS. Certainly, this seems like a potential favorable factor for value growth of ETH.

 

Actually, some famous enterprises has purchased their ENS domain names. For instance, KPMG has purchased “kmpgca.eth”, White Castle has purchased “whitecastleoffical.eth”, Puma has registered “puma.eth”.

 

Risks and deficiencies

 

ETH: For now, the domain service of ENS is mainly Ethereum-oriented. ENS has been always constructed as crucial infrastructure of Ethereum. Certainly, Ethereum is the most successful blockchain with strong extendability and editability. Total DAPPS deployed on Ethereum are 2970, which accounts for around 73% of the number of sum DAPPS. However, ETH is not irreplaceable. Some other block chains like Polkadot, Near, and Solana have more excellent technological framework and innovation than ETH. The only advantage of ETH comparing to the up-and-coming ones is its first-mover advantage. As we all know, ETH is updating its version to 2.0 for solving its problems of congestion and high transaction fees. Upgrading seems not so easy. The schedule of ETH 2.0 upgrading has been delayed for several times. Once Ethereum Foundation made some serious mistakes during the process of upgrading, such as failing to transfer from POW to POS, a system vulnerability detected by hackers, test net failure or people finally lost patience on ETH 2.0 due to its delay，other public chains may take advantage of this and even replace ETH. ENS and ETH are “a community of shared interests”. Users wish to register on ENS because of considerable daily active users provided by Ethereum. Such kind of relationship will also lead to a damage on ENS value if ETH lost its existing market share significantly. In another word, dependence on ETH is a double-edged blade for ENS.

 

Divergence: To some extent, tokens of ENS are not perfectly correlated to the value of ENS program. ENS token is mainly a governance token. Briefly speaking, holders of ENS Tokens owns the ability to control protocol parameters like price of domain name, renewal fee of domain name, air drop,etc. In addition to that, tokens holders are also empowered to control the community fund. Holding ENS tokens symbolizes voting right rather than economic rewards. The economic model of ENS tokens also can not reflect the value growth of ENS since no staking or dividend mechanism exists. It can be observed that even though revenue of ENS has hit a consecutive records since the beginning of 2022, price of ENS token shows a steady downward tendency meanwhile.

Price Change of ENS(Image Source: Coinmarketcap)

Divergence between ENS token price and ENS business value maybe another important risk factor which investors need to consider about.

 

Competitors

 

EOS

Actually, EOS users also can map their 12-digital account mixed with numbers and characters into a EOS domain name. However, due to the centralization suspicion and insufficient user base, domain name service of EOS does not get a wave to ride.

 

DAS

DAS (Decentralized Account Service) is a distributed ledger system running on Nervos CKB, a public chain developed by a Chinese team. All DAS domain names are end with “.bit”. Users can register and manage their DAS accounts using any blockchain address or email. It is interesting that users could register DAS domain names with multi languages and even emojis.

 

TNS

Terra name service(TNS) is a domain name system designed for Terra program. All the TNS domain names are ended with “.ust”.

 

SOL domains

Solana naming service is the internal domain name system of Solana. All SOL domains are ended with“.sol”. Everyone can access to the corresponding on-chain data through visiting a SOL domain name. Certainly, paying someone or to-be paid within the SOL system can also be simplified through this name service. SOL domain names auction is on Bonfida, a front-end exchange of SOL.

 

 

                                               (Written on June 7th 2022)

 

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