Economics of ENS
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TLDR below. This is not financial advice.
General Conclusion
Blockchains allow the creation of large asset registries, and one of the biggest digital assets is domain names. Domain names are digital assets that map IP addresses into more readable names.
What Is Ethereum Name Service?
Ethereum Name Service (ENS) is an NFT issuance protocol. The NFT represents an Ethereum address, and is as easy to visualise as a website domain name. The project has just launched an airdrop program for $ENS to distribute a portion of tokens to Ethereum addresses that meet certain parameters, such as purchased NFTs. This caused a price fever related to $ENS.
When you register a .com domain name you do so using a domain name registrar which updates the database of ICANN, the international organisation that coordinates internet resources such as top-level domains (TLD). When you visit something in your web browser, the domain name service (DNS) converts the name into an IP address that points to the server that stores the website data.
To Become A Decentralised DNS
ENS is an open-source and scalable distributed or decentralised naming system based on the Ethereum blockchain. ENS's job is to map human-readable names like 'alice.eth' with machine-readable identifiers like Ethereum addresses, other crypto addresses, content hashes and metadata. ENS also supports 'reverse resolution', making it possible to associate metadata such as canonical names or interface descriptions with Ethereum addresses.
ENS has similar goals to DNS, the internet's domain name service, but has a significantly different architecture due to the capabilities and constraints provided by the Ethereum blockchain. Like DNS, ENS operates on a system of dot-separated hierarchical names called domains, where the domain owner has full control over the subdomains.
Top-level domains, such as '.eth' and '.test', are owned by smart contracts called domain name registrars, which specify the rules governing allocations of their subdomains. Anyone can, by following the rules imposed by these domain name registration agreements, acquire domain ownership for their own use. ENS also supports importing DNS names already owned by users for use on ENS.
Due to the decentralised nature of ENS, anyone who owns a domain at any level can configure subdomains (for themselves or for others) as they wish. For example, if Alice owns 'alice.eth', she can create 'pay.alice.eth' and configure it as she wants.
ENS is deployed on the Ethereum mainnet and on several test networks. If you use a library like the Javascript ensjs library or an end-user application, it will automatically detect the network you are interacting with and use the ENS implementation on that network.
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Structure
Consists of two important components: Registry and Resolvers
The ENS “Registry” consists of a single smart contract that maintains a list of all primary “domains” and “subdomains” and stores three important pieces of information:
Domain owner
“Resolver” for domain
Lifetime for all records contained in the domain.
The domain owner can be an external account (user) or a smart contract. A registrar is simply a smart contract that owns a domain and grants subdomains of that domain to users according to some set of rules defined in the contract.
Domain owners in ENS registration:
Set up resolver and TLL for domain
Transfer ownership to another address
Change ownership of subdomains
ENS registration has a simple registration cycle that shapes a name from the resolver. The resolver will be responsible for converting the name to an address. Any qualified contract will participate in the resolver interactions on the ENS.
The resolver is responsible for the actual process of translating names to addresses. Any contract that implements the relevant standards can act as a settler in the ENS. General-purpose resolver implementations are provided for users with simple requirements, such as providing a frequently changed address for a name. For more information on technical documentation, please click here.
Benefits of ENS
ENS provides a few key use cases:
Web3 Identity/Username
As of August 2021, ENS has expanded its operations to include both .eth and DNS domains (i.e. .com .cash, .money). Companies can integrate their DNS domain into ENS and let their domain act as a wallet, web3 username, and decentralised website.
So far, 447,623 ENS names (.eth + DNS) have been generated with 72% (322,867) being .eth names.
Furthermore, just as internet users can log into different websites using Google, Twitter or Facebook, ENS has the potential to become a “single sign-on” for Web3. Since ENS usernames are self-regulating, they remove centralised intermediaries (eg Google account) that are often used to sign in to different platforms.
Native Payments
Domains act as a crypto wallet that can access different cryptocurrencies and interact with them. With the connection to DNS, individuals can make transactions to payment websites instead of going through third parties.
Enhanced Domain Property Rights
The goal of ENS is to deeply interact with existing DNS. Unlike media domains (like .io; .com) provided by parties like GoDaddy or Verisign, ENS has no right to revoke users' wallet addresses because they control their own domains (until they stop using the service).
Features for a Decentralised Website
ENS addresses can be used in association with IPFS (interplanetary file system), Sia Skynet, and Arweave. By linking ENS or ENS-DNS domains to IPFS, websites can point to files (e.g. stored on IPFS).
The benefits of ENS do not come from single-use cases but aggregate from potential uses. ENS is a protocol that recognises payments and is anti-browser in its stub. Therefore ENS DAO and $ENS will become extremely important.
ENS DAO
With the goal of becoming decentralised, ENS performed an airdrop of their qualified wallet addresses. This is a way of paying tribute to the early supporters of the protocol, and at the same time getting $ENS into the hands of many people. ENS will now operate using DAO.
Governance
To participate in governance, $ENS holders must request ENS Root keyholders to be allowed to administer protocol parameters (such as domain prices, oracle, etc.) and control funds from the existing community coffers.
ENS also established the ENS Foundation for the purpose of legal representation to the real world. This requires the $ENS holder to sign the ENS constitution upon claiming their airdrop. Essentially, the constitution requires adherence to principles including that ENS governance must respect ENS property rights, avoid rent-seeking behavior, avoid supporting competitive protocols, and integrate with the global namespace.
Revenue Analytics
Domains are registered through the ENS registrar and require a fee for registration (create a name) and renewal (keep the name). The fee structure is as follows:
$5 per year for names 5 characters+
$160 per year for 4 characters
$640 per year for 3 characters
ENS will not charge for importing DNS domains because they are already charged by the architecture provider. ENS's revenue comes from both subscriptions and renewals, with most coming from subscriptions.
ENS's total revenue has reached around $20m and they have grown rapidly from June 2021. More than 90% of ENS revenue was generated in 2021 and continues to show positive signs of revenue growth.
Since its launch, ENS has accrued more than 13,000 Ether in revenue with approximately $2.5 million in renewal fees and 10,000 in registration fees.
As part of the decentralisation, funds from the ENS treasury will be distributed to the DAO. Currently, the ENS registrar possesses just over 4,000 ETH (~$20 million). A number of indirect assets back $ENS in its value.
Token Design
$ENS is a governance token in ENS. There is a total of 100m $ENS and it can be used to vote on proposals.
Allocation
Community Treasury (DAO): 50%
Bonus for community holding. ETH (Airdrop Community): 25%
ENS Contributors (ENS Contributors): 25%
TLDR:
Ethereum Name Service ($ENS) is a domain name project for websites built on a distributed infrastructure, allowing the encoding of blockchain data into human-readable characters and the integration of outgoing applications associated with it. A community-focused and problem-solving project on a domain name system on blockchain.