Re-understanding ENS valuation: not just domain names

In its essence, blockchain has created a wonderful way to record assets, and one of the largest digital native assets is domain names. A blockchain-based domain name is a digital asset that maps an IP address to a more human-readable name (for example, 13.57.64.34 is mapped to Messari.io). As one of the first batch of native digital assets, since the birth of Bitcoin, many projects have tried to bridge Internet domain names to the blockchain, which is not surprising. 

01. ENS: Ethereum domain name service

 The Ethereum Name Service (ENS) is a domain name registration protocol designed to map a human-readable domain name (such as alice.eth) to an Ethereum address. ENS provides several key use cases: 

  • Web3 Identity/Username
  • Native payment
  • Enhancing domain name property rights
  • Decentralized network

 Let’s elaborate on these use cases separately. 

1) Web3 identity 

Although ENS initially created .eth domain names on the Ethereum blockchain, by August 2021, ENS included both .eth domain names and DNS domain names (such as .com, .cash, .money). In fact, companies such as Google can integrate their DNS domain names (ie Google.com) into ENS and use their domain names as a wallet, Web3 username, and a decentralized website. 

domain name

Recommendation: https://twitter.com/ensdomains/status/1430933399745798155?s=20 

As of the time of writing, 447,623 ENS domain names (including .eth and DNS domain names) have been created, 72% of which are .eth domain names. 

In addition, just as Internet users can use Google, Twitter, or Facebook accounts to log in to various websites, ENS may also become the “single sign-on” in Web3. Since the ENS domain name is self-custodial, it eliminates the traditional use of centralized middlemen (such as Google) to log in to various platforms. 

2) Native payment 

All ENS .eth domain names and DNS integrated domain names can be used as cryptocurrency native wallet addresses. They can receive multiple cryptocurrencies, including BTC, ETH, DOGE and other integrated assets. By connecting ENS to DNS, transactions can be sent to a specific website for payment without having to go through a payment intermediary. 

3) Enhance domain name property rights 

ENS is committed to integrating into our existing Domain Name System (DNS, or Domain Name System), because DNS supports the current way the world browses the Internet. However, unlike traditional .com domain name registration providers (such as Verisign or GoDaddy), the ENS agreement cannot revoke the user’s .eth address because the user controls his domain name (unless the user stops paying for the ENS domain name). 

4) Decentralized network 

The ENS address can be used with IPFS (Interplanetary File System), Sia Skynet and Arweave. For example, by connecting ENS or DNS integrated into ENS to IPFS, the website can be stored on IPFS. 

However, the ultimate benefit of ENS does not only come from a single use case, but an aggregation of potential use cases. As a protocol with native payment and potential anti-censorship features, ENS is still in its early stages. With the launch of ENS DAO and its governance token, the future of ENS will become more and more interesting. Let’s take a look at ENS DAO, the airdrop of the agreement, and the current status of ENS. 

02. ENS DAO

 As part of the decentralization of the ENS protocol, ENS has launched its own governance token and will operate through the DAO (Decentralized Autonomous Organization). 

1) ENS airdrop 

The ENS airdrop may be one of the more fair airdrops recently. Generally, the DeFi protocol rewards airdrops to users who inject funds into the DeFi protocol, and the ENS airdrops are not biased towards users who spend the most; on the contrary, the community token distribution of ENS is less biased than most other retroactive airdrops. Yu Fuhao. In the DeFi agreement, liquidity is arguably the most important added value, so retroactive airdrops are often rewarded to users in proportion to the amount of funds deployed by the users in the agreement. However, although the ENS agreement will receive revenue from the fees paid by users, the agreement determines the capital and should be the ultimate factor in community contribution. 

ENS also adds a multiplier to active users during the airdrop, that is, if the user’s account is additionally set up with a reverse record (Reverse Record), they will get double ENS tokens. 

The distribution ratio of ENS tokens is as follows: 

  • 25% is allocated to .eth holders (more than 137,000 accounts)
  • 25% is allocated to ENS contributors (more than 100 organizations and individuals, and more than 450 active Discord users);
  • 50% is allocated to the ENS DAO community treasury

 A total of 137,689 wallet addresses meet the airdrop conditions for ENS, and these addresses can receive ENS tokens before May 4, 2022. The median of this airdrop is 180 ENS tokens, which is equivalent to approximately US$10,000 at today’s price. Although more than 60% of the 25 million ENS tokens used for airdrops have already been claimed (as shown in the figure below), there are still 40% of the tokens unclaimed. Because the airdrop volume is so large, the sale of tokens may bring potential negative price pressure. 

domain name

 It is worth noting that although the ENS airdrop system is one of the best, it still allocates too many tokens to past participants in the ENS ecosystem who have been inactive. 

2) ENS governance 

According to its announcement, ENS token holders will have to formally apply to ENS root key holders in order to obtain the ability to govern the protocol parameters (ie domain name pricing, price oracles, etc.) and control the current community treasury funds. Any governance proposal will require the support of at least 100,000 tokens to enter the voting process. At the same time, the number of tokens participating in the voting has reached at least 1% of the total number of tokens and the majority voted to support the proposal. ENS holders are encouraged to delegate their voting rights to a community member who represents their views. 

In addition, ENS has also established the ENS Foundation in the Cayman Islands to represent the DAO organization in a legal capacity, facilitating any necessary practical actions in the real world, as well as the election or removal of directors. 

Perhaps most importantly, ENS token holders are required to vote directly on the ENS constitution when they claim tokens. Basically, the ENS constitution outlines several key principles, including that ENS governance must respect the property rights of ENS domain name users, avoid rent-seeking behavior, avoid supporting other competing agreements, and maximize ENS decentralization without sacrificing Integrate with traditional DNS domain name system. 

I think most people do not fully understand the importance of this last aspect, so here is a brief explanation of its importance. 

3) DNS & ENS integration 

The current DNS service has a centralized domain name registration agency called ICAAN (International Organization for Assigned Names and Addresses). This method is practical because it ensures that there will not be any conflicting domain names (for example, there will be no two types of Messari.io domain names), so that the domain name will “resolve” to an IP address/website. Integrating ENS into the existing ICAAN domain name registry means that there will be no conflict between the two. A person with an ENS address can resolve/point to a similar ICAAN registration website. This is different from other unregistered ICAAN domain name solutions, because it may conflict with the existing DNS structure. 

An example that contrasts sharply with ENS is HNS. HNS is trying to replace ICAAN by creating a new root domain name registry. They have reserved top-level domain names (such as Google.com) for top-level IP addresses to prevent conflicts. , And allow existing companies to migrate in the past. However, if the HNS domain name conflicts with ICAAN, this may have harmful effects and prevent the implementation of integration. Therefore, the essential goal of HNS is to create a new DNS system (it has its advantages, but it is beyond the scope of this article). 

In contrast, ENS aims to add the features of Ethereum (programmability, native payment, etc.) to the domain name, enabling the domain name to act as a wallet/domain name, while being able to easily integrate with the existing DNS architecture. The decision to integrate ENS with DNS is a strategic decision of the protocol team, and its goal is to establish a naming system and registrar that can be adopted worldwide. 

03. Sustainability of ENS

 The ENS domain name is created through the ENS Registrar contract, and users need to pay for registration (creating a domain name) and renewal (reserving the domain name). ENS fees are an anti-appropriation mechanism designed to ensure that no one will hold a domain name forever. 

Therefore, the price of an ENS domain name will vary according to the length of the domain name: 

  • Domain names with a length of 5+ characters: USD 5 per year;
  • A domain name of 4 characters in length: $160 per year;
  • Domain names with a length of 3 characters: $640 per year.

 For the import of DNS domain names into the ENS system, the ENS protocol does not charge fees, because DNS domain names already need to be paid to DNS providers (such as GoDaddy, etc.). 

Although the ENS agreement obtains income through both domain name registration and domain name renewal, as of now, most of the income of the ENS agreement comes from the registration of domain names, as shown in the following figure: 

domain name

Above: The growth of ENS agreement revenue. It can be seen that the agreement income mainly comes from domain name registration (light blue part), rather than domain name renewal (dark blue part). 

The ENS agreement has received a total of nearly 20 million U.S. dollars in revenue from domain name registration and renewal. In the past few months, ENS’s revenue has increased significantly, and in three of the past four months, the revenue has exceeded 2 million U.S. dollars (as shown in the figure above). Nearly 90% of cumulative agreement revenue was generated in 2021, which is a positive sign of the growth of agreement revenue. But the key question is, is this sustainable? Time will tell us the answer, although I expect that revenue from the ENS agreement will decline after reaching a record high at the end of November. 

Interestingly, the ENS agreement received the highest registration fee and renewal income in early November. This is likely to be the result of individual users trying to participate in the airdrop after the agreement was announced on November 1st. . However, the snapshot time of this airdrop is October 31, 2021 (that is, the day before the announcement of the airdrop), so all domain registration or renewal transactions that occurred in November will be ignored in the token distribution eligibility evaluation. 

domain name

Above: The ENS agreement has generated close to 19 million U.S. dollars in revenue. 

However, the above chart does not explain the whole situation, because ENS earns fee income in ETH (not U.S. dollars), and the agreement is likely to have held a considerable share of ETH over time.

Since its launch, the ENS protocol has received nearly 13,000 ETH in revenue, of which approximately $2.5 million is the domain name renewal revenue, and 10,000 ETH is from the domain name registration fee revenue. As shown below: 

domain name

Above: Since its launch, the ETH protocol has accumulated 13,000 ETH in revenue. 

As part of the decentralization of the agreement, the funds in these ENS vaults will be allocated to the DAO organization. As of the time of writing, there are more than 4,000 ETH (approximately US$20 million) in the ENS Registrar contract. 

At the time of writing, the fully diluted market value of the ENS token used to govern the ENS agreement is US$5.5 billion (calculated at the price of US$55 at the time of writing). If calculated on the basis of the agreement income of 16 million dollars that has been obtained so far this year, this means that its market-to-sales ratio is 334 times. The important thing is that ENS is a new type of protocol. Its tokens have only been traded for a short period of time. The market is determining its value, but ENS currently maintains a considerable valuation that has yet to be realized. 

The future of ENS 

ENS is not the only player in this field, but it has created a clear path for its adoption by carefully constructing a protocol that integrates with our existing world. As more and more individuals and companies use ENS, the fee income of ENS may increase substantially. In addition, as a naming protocol, ENS can support other protocols, blockchains and domain names, which means that its growth is not limited to the Ethereum network. 

In the end, it is difficult to accurately assess the benefits of public products like ENS, and the governance value of these early new Internet protocols is also very vague. Although the valuation of ENS may be that the agreement is likely to generate higher revenue, ENS creates an identity-level market for individuals, websites, and Internet transactions is huge. 

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/re-understanding-ens-valuation-not-just-domain-names-2/
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