Author: Otto Verstl (Analyst of OFR)
The Ethereum Name Service (ENS) recorded over 2.800 ETH in daily volume in the beginning of May. Floor-prices exploded for three-and four-digit ENS-domains and also the accompanying governance-token almost doubled in this timespan to a market capitalization of 450 million USD. Why did ENS take off recently and what is behind it?
What is ENS?
ENS is a naming service, which converts the 42 characters of an ethereum-address into a readable text-string, similar to DNS-domains. In the early days of the internet people used IP-addresses to find and look for websites. With the innovation of domains, it was possible to translate the IP-address 184.108.40.206 into the domain ofr.asia. ENS works in a similar way, with the exception that it stores the data in a decentralised way and that it also stores the wallet-address, giving people the opportunity to donate funds directly to the ENS-domain.
The domain is built on smart-contracts backed by the Ethereum blockchain, thus inheriting the advantages of decentralisation and security. DNS-websites are stored centrally on servers, making it vulnerable to attackers. In contrast, ENS-websites are stored across the whole Ethereum-ecosystem. The structure is the same as with DNS, giving the holder all rights to sub-domains. This means if you hold the domain abc.eth, you are also holding mail.abc.eth and work.abc.eth.
The initiative was launched by Alex Van de Sande and Nick Johnson within the Ethereum foundation in 2017. In 2018, it separated from the Ethereum foundation and is now managed by The True Names LTD , a Singaporean non-profit organisation. In November 2021, ENS issued their governance token and converted the company into a DAO. To ensure a smooth process of upgrades and maintenance, the ENS-root is currently under the supervision of a four to seven parted multisig, with members of partnered organisations as key-holders: Nick Johnson, ENS; Sergey Nazarov, Chainlink; Dan Finlay, Metamask etc. are all holding a key.
In the future, the organisation plans to have a more fairly distributed decision-making system.
The mission of the project is that the foundation of the internet infrastructure belongs to the general public and is focused on community decision-making and fair distribution. This differentiates them from their competitors like unstoppable domains, which are businesses primarily focused to make profits. This is also reflected in its price-structure. While unstoppable domains do not have an expiration date and are only payed once, ENS have yearly costs and a fixed time-span to prevent spams and random spaculations.They are spending severe time in developing a system which serves the community the best. The price for ENS-domains are paid up-front for the whole time-span and are currently 5 $ per year. To extend the time-span of your domain, you have to pay extra for four and three character-long domains, naimly 160$ and 640$ per year.
But what exactly caused the recent upswing?
Once someone buys a .eth-domain, an NFT is minted which can be traded on Opensea and other marketplaces. This has led to several twitter-influencers starting to post about how prestigious it would be to own one of only 999 three-digit domains. Hours later sales took off, buying out not only all three-, but also all four-digit domain-names. For example, 555.eth has been sold for 55,5 eth, which are currently worth over 110k USD. A three-digit domain-holder and guest on the bankless-podcast compared it to the culture in the middle east, where a low digit-licence plate is much more of a status-symbol than the luxurious car that has it on.
Out of that storm of sales the 999-Club (three-digits) and the 10K club (four-digits) have been established, driving the sale-prices even higher with the meme: I am my digits, my digits are me. Soon a discord emerged with over 7k members within a few days, an impressive growth, all happening organically. According to members the community is very passionate and keen to network, build relationships and connect with other people from the crypto-world.
The scarcity factor attracted a lot of other crypto-native people, especially for the four-digit domains. It became popular for holders to buy the digit correlated to their ID of other popular collections. For example, a BAYC-holder with the tag #1234 wants to own 1234.eth.
The 10K-Club follows the mentality “buy first, build later”, with most of the structure just being developed after the spontaneous community-initiative. A treasury is planned, as well as a DAO. The community gets a lot of help from members which have great connections to diverse companies and also a lot of web3-native organisations offered their help.
Moreover, the 10K-Club is currently working together with ENS-employees to potentially launch their own marketplace/collection for the four-digit-domains.
To conclude, ENS is a DAO which sells customizable ethereum-addresses and -domains. Three- and four-digit domains fueled an unprecedented growth of sales and attention for ENS, establishing the 999- and 10K-Club as prestigious NFT-collections. The future will show if this is only a short-lived hype-wave or a long-lasting development of one of the most elite NFT-collections in the world.
10k Club (@10kClubOfficial) | Twitter. (2022, May 20). [Tweet]. 10K-Club. https://twitter.com/10kClubOfficial
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**Bankless: The 10k ENS Club with 713.eth & 562.eth | Alpha Leak. (2022, May 8). Bankless. Retrieved May 20, 2022, from http://podcast.banklesshq.com/the-10k-ens-club-with-713eth-562eth-alpha-leak