Web3 Domain Industry Report: Ecosystem, Holding Analysis, and Potential Opportunities

Author: SeeFi

Produced by: SeeFi, CATCHERVC

Table of Contents

• Introduction to Web3 Domains
• Web3 Domain Registration and Trading
• Analysis of Web3 Domain Ownership
• Web3 Domain Ecosystem
• Future Prospects of Web3 Domains
• Appendix

1. Introduction to Web3 Domains

1. What is a Web3 Domain?

• Domains with extensions like .eth, .bnb, .nft, .crypto have strong Web3 attributes. The biggest difference from Web2 domains is that Web3 domains map to wallet addresses, while Web2 domains map to server (IP) addresses;
• The address mapped by Ethereum creator Vitalik.eth is the hexadecimal wallet address 0xab….ec9b, while www.baidu.com maps to the address 202.108.22.5;
• Like the essence of Web3, Web3 domains have decentralized characteristics. In Web2, all domain registrations and transactions are managed and controlled by the US ICANN, while Web3 domains can be registered and traded without permission; compared to Web2 domains that are stored on a single server, the decentralized storage method of Web3 domains makes them more secure;

2. Differences Between Web3 Domains and Web2 Domains

• In Web2, all domain registrations and management are handled by ICANN located in California, USA, which is highly centralized and subject to US government regulation;
• In Web3, the most mainstream domain implementation is represented by ENS, an on-chain smart contract that mints each domain as an Ethereum NFT, allowing for permissionless free registration and trading, with users setting their own corresponding resolution addresses;

3. Identity Management Tools: The Relationship Between Domains and Wallets

• Although current interactions are mainly based on wallet addresses, no one wants to remember a long string of characters. If the digital identity in Web3 needs a name, domain projects aim to become that name;
• While both domains and wallets can serve as identity management tools, they have different roles. They theoretically do not conflict but can work closely together: a wallet can use a domain as an alternative account name and serve as a name when interacting with applications; domains can also integrate multiple on-chain addresses or even multiple wallet accounts;

2. Applications of Web3 Domains

1. Accessing Various DApps

• After integrating Web3 domains with wallets, DeFi, games, trading platforms, and other DApps, users can access DApps directly through the domain. For example, .bit currently supports 107 applications including OpenSea, Trust Wallet, NFTScan, etc. The specific integration depends on the type of domain (single-chain, multi-chain, etc.);
• In Web3, due to wallet address login and the on-chain resolution of domains, DApps can easily support users using a specific domain as their account name. Moreover, due to the uniqueness of domains, as multi-chain support matures, you can ensure that the same domain used on Opensea (ETH) and Magic Eden (Solana) belongs to the same person;
• The unification of account names also facilitates the intercommunication of identity data. Since the resolution information of domains contains data from other chains and Web2, application providers can obtain user information that cannot be accessed through on-chain wallet addresses alone. This not only directly imports user data, reducing the cost of users getting started with new applications from an informational perspective, but also allows application providers to make targeted recommendations; various credentials and badges issued by application providers can also be resolved and bound by domains, increasing their interoperability on-chain and user recognition;

2. Personal/Corporate Identity Display and Application

• Web3 domains can serve as personal identity cards, such as Vitalik's Vitalik.eth, allowing other users to directly input Vitalik.eth for transfers without needing to enter long addresses. Web3 domains embody the decentralization, readability, and security of Zooko's triangle;
• Decentralization is the essential difference between Web3 applications and Web2 applications, where all data exists on-chain, controlled by users, solving the centralization issues present in Web2 domains;
• Human readability refers to providing users with meaningful and memorable names. Compared to cumbersome wallet addresses, users find it easier to remember shorter and more memorable characters;
• Web3 domains address the poor human readability of wallet addresses by allowing various symbols (letters, numbers, emojis, etc.) to be included in the domain, creating domains that are easy to display and reflect the user's personal style;
• The issue of user privacy protection lies in the binding of domains with wallet addresses, account names, emails, and other user information. By displaying information through personal homepages, anyone can query user information through block explorers, making it difficult to protect users' account information and transaction privacy, which poses a risk of account attacks. However, there are currently methods such as privacy computing and identity/account isolation to protect user factors, ensuring the security of user assets and information;

3. Establishing Decentralized Websites

• Web3 domains can be used to establish decentralized websites, which can serve as platforms aggregating various user data, such as credential types (POAP, Galxe), etc. Currently, decentralized website access can be achieved by using Web3 domains as second-level domains of top-level domains, such as vitalik.eth.xyz, or by using browsers that support direct access to domains as website addresses, such as Opera, Brave, etc.;
• The Ethereum Foundation, Ethereum Name Service (ENS), and digital identity authentication company Spruce jointly launched the website login.xyz to track the progress of Sign-In with Ethereum. Sign-In with Ethereum is a technical specification that allows users to log into third-party web applications using Ethereum accounts, enabling users to control their digital identity through Ethereum accounts and ENS profiles rather than relying on traditional intermediaries;

4. Establishing Subdomains

After registering a domain, Web3 users can create subdomains, which serve as strong symbols of community and corporate identity. For example, if Nina is an employee of Puma, Puma can issue Nina.Puma.eth to her, and the owner of the main domain can open registration and purchase of subdomains to the public, which is an effective way to build communities for various organizations.

ENS Domain Packaging

Existing ENS domains of any level can be packaged as ERC-1155 tokens, with subdomains stored as separate NFTs. Additionally, the parent domain can exercise finer management control over subdomains, including expiration and permission granting, bringing more flexibility to ENS domains. Currently, ENS subdomains are not created as separate NFTs, so their transfer and trading are also limited.

It is well known that ERC-721 is the most basic and widely used NFT underlying standard on Ethereum, representing a non-fungible token contract. In contrast, ERC-1155 supports both fungible and non-fungible tokens and allows for batch transfers and batch authorizations, making it very convenient and efficient for controlling and managing subdomains;

5. Types of Web3 Domains

• ENS

ENS stands for Ethereum Name Service, a decentralized domain service provider built on Ethereum. ENS can convert Ethereum addresses into characters that are easier for humans to remember and recognize, forming Ethereum domains ending with ".eth";

ENS was established in May 2017 and is an ecological project incubated by the Ethereum Foundation, with the original creator and developer being Nick Johnson;

The Ethereum domain service provider ENS created a decentralized autonomous organization (DAO) and released the governance token ENS, planning to transfer governance rights of ENS to the community. The scope of DAO governance includes voting to appoint or dismiss ENS team members, deciding control over the ENS community treasury, future revenue fund control, and the registration mechanism and pricing rights of ".eth" domains, among others.

• Unstoppable Domains

Unstoppable Domains is an NFT domain provider where users can register domains with extensions like .crypto/.nft/.x/.wallet, binding the domain to wallet addresses, allowing users to send, receive, and store crypto assets simply by entering the domain;

Domain holders can create personalized Web3 homepages based on their domains, showcasing social accounts, NFT collections, NFT avatars, and on-chain achievements;

Unstoppable Domains emphasizes NFT domains, with a broader range of use cases combined with NFT scenarios. Users can make a one-time payment to permanently own the domain, with prices ranging from $5 to hundreds of thousands of dollars.

• .bit

Originally named DAS, .bit is a decentralized domain system developed based on Nervos CKB. This public chain is not considered a mainstream public chain in the general public's perception, but it has unique properties—it is specifically designed for unified management of assets across different public chains, positioning .bit as a data storage device;

Domains contain data and ownership, with data including wallet addresses, social media accounts, peer-to-peer encrypted communication accounts, web browsers, decentralized websites, etc., while ownership is primarily represented by private keys;

.bit allows users to freely define character content, which can include letters, numbers, special symbols, emojis, images, etc.;

• SpaceID

Space ID launched the .bnb domain on BSC, and SPACE ID is the full-chain domain service provider on the BNB Chain, allowing users to bind their identities across multiple chains, enabling users to use the same domain across different chains and simplifying operations;

Communities can build their own top-level domains through SPACE ID's network; SPACE ID emphasizes the combination of TLD (top-level domain) and multi-chain domain services;

Currently, Space has 76 ecological partners, covering all mainstream tracks in Web3;

• Lens Protocol

Lens's design philosophy is mainly "everything can be NFT," dividing social interactions into several independent modules, primarily Profile, Publication, Comment, Mirror, Collect, Fellow;

Among them, Profile is the social domain name of .lens, where users need to profile and publish content to connect with others;

All content published by users is NFTs, and currently, over 1 million users have published content, effectively protecting the copyright interests of content publishers.

3. Web3 Domain Registration and Trading

1. Number of Web3 Domain Registrations

Domain registrations are mainly concentrated in ENS and Unstoppable Domains. Due to the identity card attributes of multi-chain domains, the number of registrations is expected to increase in the future.

2. Web3 Domain Registration Fees

Web3 domains are typically charged based on byte length and registration duration. For domains with 5 bytes or more, the fee is around $5 per year, while prices for domains with fewer than 4 bytes will rise; Unstoppable Domains supports permanent purchases, with fees of $150 for 3 bytes, $120 for 4 bytes, and $40 for 5 bytes; some domain projects currently only support secondary market purchases, such as Lens Protocol's .lens handle, which has a floor price of $36 on the secondary market OpenSea.

3. Web3 Domain Trading

The most expensive Web3 domain trade comes from Paradigm.eth, which was sold for 420 ETH (approximately $1.5 million at that time) in 2021.

Currently, the longest registered ENS domain is roguegod.eth, with a registration period of 6934 years.

According to Nansen data, in terms of ETH, 812.eth (Twitter account @GammaPure) is the address with the highest realized profit, reaching 646 ETH, with a profit margin exceeding 6000%.

Due to the market's size and representativeness, in the past year, pure numeric domains accounted for 63% of total transaction volume, and pure numeric domains accounted for 41% of total transaction count; aside from numeric domains, three-letter domains also reached 0.45 thousand ETH in trading, and domains composed entirely of emojis have also attracted attention.

Transaction volumes reflect that the most sought-after Web3 domains currently follow the principle of achieving the shortest path, with short numeric, character length, and the most common emoji domains having the highest registration and liquidity in the market.

4. Analysis of Web3 Domain Registration and Trading Numbers

The current registration numbers of Web3 domains are concentrated due to three determining factors:

• The value and endorsement of the public chain of the domain: The public chain where the domain is located largely determines the domain's value. For example, the most registered ENS benefits from the strong Ethereum public chain, as users/companies believe it has strong scalability and high investment security. Similarly, SpaceID's domain .bnb is also considered to have high practical and commercial value under the support of the BNB Chain.
• The ecosystem of the domain: The ecosystem of the domain refers to the scenarios in which the domain can be used. After integrating with different project parties, the domain will have higher practical value. If the domain project integrates with popular projects in the market, such as wallets or DeFi projects, it will attract more market attention.
• The innovativeness of the domain narrative: The narrative of the domain project can make it more attractive. For example, .bit emphasizes restoring users' sovereignty over related identity data, while Lens Protocol's .lens handle redefines the social value of domains.

5. B-side vs C-side

(1) Protection of Domain Intellectual Property is a Verified Logic in Web2

In the Web2 era, many companies spent large sums to acquire domains, such as JD.com acquired by Jingdong for 30 million, mi.com acquired by Xiaomi for 22.11 million, VIP.com acquired by Vipshop for 12 million, Le.com acquired by LeTV for 60 million, and 360.com acquired by 360 for 17 million dollars;

In the metaverse track, companies like Meta, Apple, Microsoft, telecom companies, Huawei, Tencent, Jingdong, Baidu, Xiaomi, Disney, etc., have all been involved, including Meta acquiring Meta.com, Meta.org, FBverse.com, and Apple acquiring Metaio.asia, while Microsoft acquired xboxmeta.com and xboxmeta.net. China Telecom acquired EcoVerse.cn, Baidu registered baidumeta.com.cn, Huawei registered Oyuzhou.cn and Metapartner.cn, and Jingdong registered jingdongMeta.cn and jingdongMeta.com.cn, among many other metaverse-related domains.

(2) Early Layout of Domains to Establish Web3 Reputation on Traffic Platforms

• Budweiser purchased beer.eth for 30 ETH; luxury brand Gucci acquired gucci.eth for 12 ETH; jewelry brand Tiffany bought tiffany.eth for 29 ETH; amazon.eth sold for 100 ETH in an auction;
• Taking the Sandbox game as an example, many B-side clients, such as HSBC, Gucci, and Warner Music, have already settled on the Sandbox platform. With the support of domains and blockchain mobile games, B-side clients can establish their reputation and user base in Web3 more quickly;
• Currently, aside from .eth, other domain suffixes still have many Web2 company name prefixes, making it the best time to select promising domain registrars/public chain domains for early layout.

(3) C-side Users: Web3 Domains as Business Cards

C-side users can register .eth domains and set them as social media names, becoming identity tokens in Web3. This makes transactions, logging into different applications, and displaying and accumulating personal data more convenient, while also providing identity unification and connectivity.

4. Analysis of Web3 Domain Ownership

1. .eth

From 2022 to 2023, the number of .eth domains increased by 277% year-on-year. Starting from September 2022, the number of domains slowed down due to the bear market and various black swan events.

Source: https://nftgo.io/

The total number of .eth holders is 632,350, with 69% holding only one .eth, and only 0.57% holding more than 100 .eth; among ETH holders, 97% have held for more than 30 days, indicating relative stability.

2. Unstoppable Domains

The total number of UD holders is 736,660, with 65% holding only one UD and only 0.40% holding more than 100 UD; 99% of UD holders have held for more than 30 days, indicating poor new sales.

3. .bit

The total number of .bit holders is 109,000, with 73% holding only one .bit and only 0.16% holding more than 100 .bit; 95% of .bit holders have held for more than 30 days.

4. Space ID

Space ID (.bnb) has a total of 21,000 holders, with 66% holding only one .bnb and only 0.02% holding more than 100 .bnb; 98% of .bnb holders have held for more than 30 days.

5. Lens Protocol

Lens's design philosophy is mainly "everything can be NFT," dividing social interactions into several independent modules, primarily Profile, Publication, Comment, Mirror, Collect, Fellow. Among them, Profile is the social domain name of .lens, where users need to profile and publish content to connect with others. All content published by users is NFTs, and currently, over 1 million users have published content, effectively protecting the copyright interests of content publishers.

5. Web3 Domain Ecosystem

The domain ecosystem refers to the ecosystem formed by the projects integrated with the domain. For example, domains can integrate with wallets, browsers, DeFi, and other applications. The richer the domain ecosystem, the greater the role and value of the domain. For instance, ENS and UD, which have the highest number of ecosystems, are also the largest domain projects in terms of registration and trading numbers.

6. Future Prospects

1. Financial Derivatives

• The F-NFT (NFT fragmentation) of Web3 domains allows people to own a part of an expensive Web3 domain for investment and simultaneously alleviate economic burdens;
• For Web3 domain investors, it is possible to release some value without fully selling the NFT. When asset values are very high, they can be divided into more liquidity and used as collateral.

2. Lending Services for Web3 Domains

• ENS names are not just names; they also apply to a broader range of NFTs and everything related, including collateral for loans;
• Actual case: Rocket LP DAO issued a $1,000 loan, with the collateral being the Ethereum Name Service (ENS) address "brantly.eth";
• Rocket issued a 90-day loan worth 6.5 wETH (approximately $1,000) to Millegan. At the end of the loan term, he must repay the loan plus a 15% interest rate. In exchange, Rocket has 90 days of usage rights to the domain, while Millegan can still use the domain. If he defaults, Rocket will retain ownership of the domain and be able to revoke it.

3. Pure Domain Trading Platforms

• Currently, there is a lack of secondary trading markets with more financial tools to stimulate liquidity;
• Web2 domain investors are currently more in a wait-and-see mode. Compared to the $20 billion total transaction volume of Web2 domains, Web3 domains have only reached $100 million.

4. Various Services and Platform Organizations Will Derive from Web3 Domains in the Future

5. The Paradox of Uniqueness in Web3 Domains

• If two projects open registration for the same domain suffix to users, how should this be resolved? After all, creating a smart contract similar to ENS to issue NFTs for a certain domain suffix to the public is almost a barrier-free task;
• This is a very thought-provoking issue in the domain field because the reason domains can serve as "universal names in Web3" lies in their uniqueness on public chains and even within the entire Web3 system. If this uniqueness is compromised, the value of the entire domain will be affected;
• For example, the .nft domain issued by NNS was delisted by Opensea (other exchanges did not delist it) because Opensea received a complaint from Unstoppable Domains, which had publicly sold .nft domains in the market before NNS and had already registered the ".nft" trademark in Hong Kong. However, in fact, the NFTs of .nft domains issued by NNS and Unstoppable Domains are not on the same public chain, and their business focuses are also quite different, not a case of imitation and being imitated; from the perspective of trademark infringement, NNS had also registered the ".nft" trademark in Japan, South Korea, and other regions earlier.

6. Appendix