Web3 Domain Name, Boom or Bubble?

Jan 05,2023
Web3 Domain Name, Boom or Bubble?

In a sense, Web3 domain names have been one of the most valuable digital assets in the history of the Internet. Just as several domains of ENS have sold for sky-high prices, Sky Dayton and Jake Winebaum bought the Business.com domain name back in 1999 for a whopping $7.5 million and sold it for $345 million in 2007. As the Internet world has evolved, domain names have become like a virtual identity or a code name for an IP address.


In the early days of the Internet, people used IP addresses to find websites, and if we lost our domain names, we might not be able to enter Baidu by typing baidu.com, but rather by typing a jumbled string of numbers.


But the traditional DNS domain name system still inherently has some centralization issues, and some centralized entities will analyze and buy back some of the domain names as a way to hype them up and sell them to the original holders at a higher price. As well as centralized storage has drawbacks both from technical security and in the use of security. And if it is based on blockchain, it can solve some of the pain points of traditional domain names.


The rise of Web3 domain names has been witnessed in recent months by a significant increase in the popularity and usage of Web3 domain name services such as ENS (Ethereum Name Service) and Unstoppable Domains.


Web3 Domain Name Services Are on the Rise


Blockchain-based decentralized domain names and decentralized account systems have been born for 10 years, and the pioneer Namecoin, although still running, has become a niche project with relatively low user adoption. the emergence of ENS, on the other hand, has taken a more pragmatic route, and with the rapid expansion of the ethereum ecosystem, it has also reaped many dividends, with many third-party applications using it to build specific account system, becoming an indispensable kind of infrastructure for the ethereum ecology.


ENS is like an identity for the Web3 world. Although ENS does not represent all blockchain domain names, it accounts for more than 70% of the blockchain domain market as of today. ENS enables users to register domain names issued on the EtherChain that are editable and can interact with other EtherChain-based decentralized applications. profile data, etc., that can be used across Dapps in the supported Web3 ecosystem. Because they use the ERC-721dai coin 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 ENS domains have been created out of 546,000 unique users.


Another popular Web3 domain name service is Unstoppable Domains, which is similar to ENS, but offers support for other top-level domain server names. Unstoppable allows users to purchase domain names of other top-level domain servers, such as "name.crypto", "name.wallet", "name.nft ", "name.DAO", "name.bitcoin", etc.


Since the platform's launch in 2019, the Unstoppable community has registered over 2.5 million domains and completed $80 million in primary sales, with the program supporting over 275 dai coins and 370 apps.


New Web3 applications in gaming, metaverse, DeFi, DAO and social media require decentralized identity management and unmanaged wallets that can be seamlessly integrated, and the domain name service is proving to be a breakthrough use case that fits the bill, leveraging readable names, such as human names, to optimize the user experience, allowing users to store their digital assets such as dai coins in unmanaged wallets and interact with Web3 Dapp for interaction.


As opposed to copying and pasting a 42-character hexadecimal string (i.e. "0x0CCfA1c...") Web3 domain name service providers enable users to easily send dai coins and support custom cryptocurrency wallet addresses compared to wallet addresses that represent blockchains such as ethereum. web3 domains are not only convenient for ordinary wallet addresses to transfer money, but more importantly can be a label for the user's on-chain identity, while the personalization will lower the barrier of understanding for new users. Currently ENS and Unstoppable are already integrated with some wallets, exchanges and Dapps, including Metamask, Opera Browser, 1inch, Moonpay and others.


ENS domains can be freely traded between Ether wallets in secondary markets through NFT marketplaces such as OpenSea.


The NFT market has been sluggish of late, but domain name trading activity has been on a surge. monthly trading volume at OpenSea has fallen sharply, with $500 million traded in August, a 90% drop from January's volume of $4.86 billion. During the same period, monthly ENS registrations increased by 465%, from 67,000 new registrations in January to 379,000 in July.


It is worth noting that the Web3 domain name service is not exclusive to Ether and has expanded beyond Ether.


The Future of Web3 Domains


Investors and speculators have been buying potentially valuable domains as investments, expecting companies and brands that want to build a presence in Web3 to go for the domains they hold. An anonymous buyer recently offered $1 million for the ENS domain name "Amazon.eth", after "Samsung.eth" and "Starbucks.eth" also sold for 60 ETH.


This behavior is reminiscent of the domain name rush during the Internet bubble era of the 1990s, when speculators hoarded domains for popular keywords and brands in hopes of profiting from the hype. For example, the ethereum address with "nike.eth" has amassed 131 ENS domains, including "sony.eth" and others.


It remains to be seen how valuable decentralized domain names will be and whether they will actually become the primary way users manage their digital identities. platforms such as ENS and Unstoppable offer unique advantages over traditional DNS systems by giving more comprehensive property rights and fewer security vulnerabilities.


For investors who believe that Web3 domain name services will provide the critical infrastructure to facilitate the broader user growth and adoption of Web3, it appears that they can gain exposure through their domain name holdings. Similar to the traditional Internet era, investors can also preemptively purchase premium domain names that they believe may have value in the future.


Many believe that a decentralized domain name and account system must be needed to host applications, websites, and user identities in the Web3 world, but these current projects are still in the very early stages of exploration, with much, much room for improvement in protocol integration, user experience, and access to the Web2 world.


The potential applications that decentralized domain names offer to participants within the Web3 ecosystem have not yet been fully realized, and users also still face significant resistance to fully participating in the emerging Web3 crypto economy due to user experience and security issues. But decentralized domain name providers have addressed at least one pain point by making it easier for users to interact with other users in the Web3 world.