Crypto Domain Names provide two main benefits:

1. a transparent infrastructure for access to and maintenance of new domain names, and
2. mapping of non-human-friendly blockchain addresses to human-friendly ones.

Executive Summary

Two distinct problems exist with current domain names:

1. Control over traditional domain names is held by centralized entities such as ICANN and affiliated Certificate Authorities (CA), and the ownership process of new top-level domain names is opaque, expensive, and time-consuming.
2. Blockchain addresses are non-human readable, which degrades user experience and increases chances of erroneous transactions.

Crypto Domain Names protocols solve both problems:

1. Handshake allows transparent and collective user participation in the maintenance and access of new top-level domain names.
2. Ethereum Name Service (ENS) maps non-human friendly blockchain addresses to human-friendly names, with potential to become a user's unified on-chain identity as adoption increases.

Contents

1. Overview of Traditional & Crypto Domain Names

• Web2: Traditional Domain Names
• Problems with opacity and centralization
• Web3: Crypto Domain Names
• Problems with non-human readable names

2. Crypto Domain Name Leaders

• Ethereum Name Service (ENS)
• Handshake

3. Emerging Competitors

• Unstoppable Domains

4. Conclusion & Key Insights

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Overview of Traditional & Crypto Domain Names

Web2: Traditional Domain Names

In the early days of the Internet, before domain names existed, users were required to memorize and type out a string of digits that corresponded to their desired website. As more and more websites came online, it became infeasible to learn and replicate the exact digits by heart to access a website.

This led to the establishment of the Domain Name System (DNS). DNS allows for the mapping of digit-based IP addresses to human-readable domain names via a tiered registry. A list of top-level domains (TLD) such as .com, .net or .org, collectively known as a root zone, are maintained by the Internet Corporation for Assigned Names and Numbers (ICANN) and affiliated Certificate Authorities (CA) under a centralized file.

When a user types google.com into an Internet browser, the browser client sends request to the DNS Resolver, asking for the relevant IP address. The DNS Resolver then resolves to the relevant root name server (in this case .com), which then sends a request to a TLD name server. After several more iterations of requesting and resolving, Google's authoritative name server finally sends the IP address mapped to google.com back to the client, allowing the user to access the website.

Problems with opacity and centralization

Although DNS is a revolutionary system that forms a critical part of the Internet's infrastructure even today, that is not to say that it is without its problems. However, its faults lies not with the system itself - but with the entities that govern it. The ICANN has had a long history of accusations against it, that it is: slow to act when resolving problems, opaque when responding to new domain requests, and generally negligent of its own duties.

One prominent example was ICANN taking over four years and 2,500 customer complaints to terminate its accreditation agreement with registrar Net 4 India, despite the firm's multiple failures to uphold the accreditation contract. Breaches included failure to service customer domain renewals, domains being moved to another company without customer consent and more.

Another example was ICANN unilaterally deciding to remove price caps on all .org TLDs, despite an overwhelming 98% of respondents to their public comment process opposing this. This meant the ICANN would be free to hike prices as they saw fit, instead of the previous limit of 10% maximum per year.

What's more, if users want to register a new TLD with ICANN, they must wait for one of the sparse application windows, open only briefly once every few years. ICANN also charges a $185K application fee with no refunds in the case of an unsuccessful case. Even those who do have their TLD approved and registered must pay an additional $25K fixed fee to the ICANN, significantly raising the barrier to entry for new TLDs.

All the problems mentioned above can ultimately be distilled down to a single root cause - overcentralization of power. So how can this be solved? As all crypto enthusiasts will be keen to exclaim - just decentralize it!

Web3: Crypto Domain Names

In short, crypto domain names help to prevent the problems above by providing a transparent infrastructure for the access of new domain names and maintenance of existing ones.

The first crypto projects aiming to achieve a decentralized DNS was one of the first Bitcoin forks (and first altcoins in general) ever - Namecoin, with its first block mined as far back as Apr 2011.  Namecoin allowed users to build subdomains and websites on top of the .bit TLD. With the selling point of having private web traffic and a distributed and trustless system to attest that subdomains are legitimate (instead of centralized CAs), Namecoin remained as one of the top performing altcoins during the early stages of the crypto industry.

Unfortunately, Namecoin did never manage to gain wide user adoption beyond that - in fact of the 120K .bit domains registered through Namecoin, only 28 were active and contained "non-trivial" content (trivial being a page that only contained a few words and nothing more).

This can be attributed to two main factors: low cost for domain squatting and poor user experience. Not only were a whopping 76% of .bit domains estimated to be held by squatters, the wallet used to store Namecoin domain names also took over 10 minutes to open. Needless to say, although the system itself might be sound, like all things, it needs to be implemented well in order to gain adoption and thrive.

Problems with non-human readable names

With all that said, merely having a transparent and distributed system for domain name registration and maintenance is not enough - there is still another problem crypto domain names can overcome.

Blockchain-native addresses are generated via hashing algorithms, and are thus non-human readable. Not only does this create a suboptimal user experience when transacting, but the issue is exacerbated by the immutable nature of blockchains. Under most circumstances, immutability is a much-cherished feature of blockchains. Users rest easy knowing that their funds cannot be tampered by third parties, as long as both personal and network security are adequate.

However, if funds are mistakenly sent to the wrong address, or even worse - if a user falls for a phishing attack - then the funds are irrevocably lost. One such example was during the ICO-mania of 2018, when over 71 users lost over $150K in ETH to a phishing attack over the Experty ICO. In TradFi, banks could simply reverse the transaction and return the funds to their rightful owner, but alas, this is crypto!

If addresses were human-readable, much of these types of losses could be prevented. If a user was transacting with a peer or depositing funds into a smart contract, they would be able to manually verify that the address of the counterparty was correct.

The two problems above bring us to the current leaders in the Crypto Domain Name landscape - Ethereum Name Service (ENS) and Handshake.

Ethereum Name Service (ENS)

Overview

ENS is a distributed naming system based on the Ethereum blockchain, allowing for the mapping of hash-based non-human readable blockchain addresses to human-readable names.

Product

The signature product of ENS are its domain names. ENS provides users with top-level domains such as .eth, .xyz or .test (Ethereum testnet only), and allows them to register their desired second-level domain names underneath. For example, vitalik.eth is the ENS address of Ethereum Founder Vitalik Buterin.

The value proposition of ENS names are not merely the mapping of non-human readable names to human-readable ones, but the opportunity for a unifying digital identity. The web2 equivalent would be your Gmail account acting as your digital passport, allowing you to plug-in directly to websites from YouTube to Twitter and more.

The registration of domain names is supported by three core smart contracts: the registry, the resolver and the registrar:

1. The registry assigns and stores the list of all domains and subdomains, and their respective owners, resolver and time-to-live (the maximum duration a name can be cached).
2. The resolver is responsible for the actual querying and mapping of Ethereum addresses to domain names. This is the equivalent of traditional DNS resolvers, used for mapping IP addresses to website domain names.
3. The (permanent) registrar tracks the registrant of a name. It is important to note that owning a name via the registry and owning a registration via the registrar are two distinct concepts. Registrants can call a reclaim function which returns the ownership to them, in essence making them the true owners of the ENS address. This allows registrants to transfer their names to other contracts or owners that help them manage administrative matters like subdomains, while retaining the right to recall the name if needed.

When a dApp interacts with an ENS address, the resolving process works as follows:

1. The dApp queries the registry for the resolver of the required name
2. The registry locates the required name and responds with the corresponding resolver
3. The dApp queries the resolver for the underlying address of the name
4. The resolver responds to the dApp with the underlying address

To allow users to manage their names, the ENS team has also built a ENS Manager frontend which tracks the underlying subscription status and future renewals of names.

The ENS team have also released the ENS governance token with a maximum supply of 100M. The community treasury will receive 50M tokens, of which 10M will be unlocked immediately, with the remaining 40M gradually unlocking over a period of four years.

Of the 25M ENS tokens allocated for airdrops to early ENS holders, over 5.4M were left unclaimed by the community. These tokens were transferred to the DAO treasury,  which now holds over 62.5M tokens.

Business Model

ENS derives revenue mainly from two sources:

1. Address Registrations
2. Address Renewals

Pricing of address registration and renewal depends on the length of the name, where shorter names are more scarce and are thus priced higher. The pricing tiers are as follows:

• 3 characters: $640 per year
• 4 characters: $160 per year
• 5+ characters: $5 per year

All the fees from registrations and renewals go towards the protocol treasury to support the core ENS development team and other teams working on ENS-related products.

Numerous discussions on the ENS governance forums have also explored the possibility of imposing a royalty for ENS name sales on the secondary market. The most recent discussion posted in late-Jun 2022 included a poll where 75% of voters were in favour of not introducing royalty fees.

Market Adoption

It is important to note that the existence of domain name mapping alone is not enough to achieve user-friendliness. The mapping itself must also be deeply embedded within the Ethereum ecosystem, such that no matter where users goes, they are able to operate under their desired name.

ENS currently serves over 482K users across 1.67M unique names, and are integrated with over 505 dApps, wallets. Most major dApps across the Ethereum ecosystem (both L1 and L2) have been integrated with ENS, while integrated wallets include: Metamask, Trust Wallet, Coinbase, Rainbow and more.

ENS user adoption and protocol revenue has maintained a steady level since Nov 2021, with the protocol generating an average of ~$100K of revenue per day across 2K users.

Large spikes in ENS registration activity in late-Apr 2022 to May 2022 were due to a sudden surge in popularity of 3-digit ENS addresses. Buyers and registrants theorized that, as 3-digit addresses would have a higher chance of being relatable to future Ethereum users compared to other more obscure addresses, their scarcity would eventually allow them to become more valuable.

The 3-digit ENS domain squatting mania was briefly reignited in early Jul 2022 when ENS address 000.eth was purchased for 300 ETH.

As mentioned above, the renewal fee for 3-character ENS addresses costs $640 per year (as opposed to $5 per year for longer addresses), and as such it's not difficult to see why protocol revenue spiked so high during these periods.

Team

ENS was co-created in early 2017 by Software Engineer Nick Johnson and UX Designer Alexandre Van de Sande during their time at the Ethereum Foundation, with the goal of allowing ENS to become a public good embedded within the core Ethereum infrastructure.

In 2018, Johnson along with other enthusiasts, later founded True Names Limited, a non-profit organization now responsible for driving the core development behind ENS. The team currently has 13 members, mainly focusing the frontend and solidity development.

Financials

ENS maintains a healthy protocol treasury, currently holding over $975M across all assets in total. Even when discounting the $927M held in native ENS token (which includes the locked supply of ENS allocated to the treasury), as of 27 July 2022 the ENS treasury still holds over $41M in ETH and $6M in USDC.

The treasury is currently managed by a four of seven multisig. Multisig keyholders are well-known individuals and leaders throughout the crypto industry, including: Nick Johnson of True Names Limited, Sergey Nazarov of Chainlink, Dan Finlay of Metamask and more.

In addition to protocol revenue, the ENS team has also received financial support from the Ethereum Foundation, Binance, Chainlink, Ethereum Classic Labs, and Protocol Labs.

Handshake

Overview

Handshake is a decentralized domain name Certificate Authority, allowing for transparent and collective maintenance of the root zone file (list of all Top Level Domains such as .com, .net, .org), in place of the existing root zone system maintained solely by opaque and centralized entities.

Product

Handshake itself is a proof-of-work Layer-1 blockchain, enabling cryptographically-proven ownership of both domain names and the order in which the ownership took place. If a user owns a domain name, it must be established that they have started to own the name from a certain date in time, such that subsequent ownership claims cannot be falsified.

Handshake introduces two mechanisms to achieve this:

1. Vickrey auction system for domain names through four stages: open, bid, reveal, register/redeem. As only one TLD will be auctioned per week, this mitigates the risk of early domain squatters from purchasing all the desired names (such as in the case of Namecoin):
2. Decentralized ownership and maintenance of the root zone file:

As mentioned, the auctioning process utilises the HNS token. HNS has a maximum supply of 2.04B, with over 1.36B available immediately at the genesis block and 680M to be mined over the course of the next 100 years.

70% of the initial (or 47% of the fully-diluted) HNS supply have been allocated to ~200K open-source developers, with qualifying criteria such as developers with 15 Github followers and valid SSH+PGP keys in Feb 2019. The team estimates that at a maximum, only 50M HNS tokens will be claimed via these airdrops as most eligible developers had refreshed their SSH keys since 2019, making the effective maximum supply approximately ~1.1B.

Business Model

While Handshake itself is a non-profit project, it was later acquired in Feb 2022 by Namecheap, a major domain name registrar company, and is now operated by its for-profit arm Namebase.

Namebase generates revenue through several methods:

• Exchange: Namebase has two in-built HNS exchanges (Namebase Consumer and Namebase Pro) allowing customers to trade HNS with BTC or USD. Consumer does not charge any trading fees, while Pro (an order book-style exchange) charges a 0.1% maker fee.
• Marketplace: The Namebase Domain Manager allows users to list their domain names for sale, and charges a 3% comission fee to sellers when the sale is successful.
• Registry: The Namebase Registry allows TLD holders to sell subdomains to other users, charging a $1 processing fee and 30% of the sale proceeds.

Market Adoption

Since launch on Feb 2020, Handshake has seen an average of 11.7M HNS tokens spent on domain name bids per month, peaking in Jan 2021 with over 27M HNS spent. Since Jan 2022, the average HNS bid per month is approximately 11M, indicating that general interest in Handshake domains has not been stunted despite market downturn. In the month of Jul 2022, there have been an average of 26.7K bids per day, peaking in 19 Jul 2022 with over 68K bids.

The Handshake secondary marketplace for domains has also seen a gradual uptick in activity, peaking with over 4M HNS spent in the month of Jul 2022.

As Namebase earns 3% commission from the monthly marketplace volume (denoted in HNS), the revenue Namebase receives from domain name marketplace commissions can be estimated to be ~$27K since the beginning of 2022.

Registered names and unique handshake domains has also seen a general increase, reaching over 6.2M names and 126K domains respectively.

In addition to domain sales, Handshake has also held an annual online conference since 2021, aptly named as Handycon. Numerous community-led projects building on top of the Handshake ecosystem participated in Handycon 2022, including:

• Bob Wallet: A non-custodial wallet that allows users to bid on new TLDs, manage names and send/receive HNS tokens with their domain name.
• Shakedex: Led by anonymous developer Kurumiimari, Shakedex is the first DEX on the Handshake network, allowing users to trade TLDs freely.
• HNSSearch: A decentralized search engine that tracks websites using Handshake domains exclusively, without recording user traffic information.

Team

Handshake was co-founded by Andrew Lee and Christopher Jeffrey, both well-known developers in the Bitcoin community who had previously worked on Bcoin (nodeJS implementation of Bitcoin). Bootstrapped and incubated by their previous start-up Purse.io and VPN service Private Internet Access (founded by another coincidentally-named Andrew Lee), Handshake was launched on Feb 2020.

As mentioned above, Handshake was later acquired by Namecheap, a major domain name registrar company, in Feb 2022. Namecheap itself has been an early supporter of the crypto industry, and have been taking payments in Bitcoin since 2013. Since the acquisition, Handshake has been run by Namebase, which employs a compact engineering/tech team to maintain development.

Financials

During the initial stages of launch, Handshake had also sold 102M HNS tokens at $0.1 per HNS to 31 strategic project sponsors and investors (such as a16z, Sequoia Capital, Pantera Capital, Hashed). The full sum of $10.2M was later donated to open-source software projects (including Tor, Internet Archive, Wikipedia, GNU and more).

Emerging Competitors

In addition to ENS and Handshake, there are also other emerging competitors in the Crypto Domain Name space.

Unstoppable Domains

Objectives

As the primary competitor to ENS, Unstoppable Domains aims to provide users with human-readable names in place of non-human readable hash-based addresses.

Product

The flagship product of Unstoppable Domains is Unstoppable Name Service (UNS - sound familiar?), which provides subdomain names based on Ethereum, Polygon and Zilliqa. TLDs offered include .crypto, .wallet, .zil and more.

Unstoppable Domains has recently courted controversy by filing a trademark lawsuit against the Gateway registry for offering subdomains under the .wallet TLD through Handshake. Gateway has since shut-down their .wallet services, but it remains to be seen if litigations will continue.

To access Unstoppable Domains, users are required to use the Unstoppable Browser (forked from Chromium) or a special browser extension. Also unlike competitors ENS and Handshake, Unstoppable Domains does not feature their own token.

Business Model

Unstoppable Domains are one-off and do not expire, and thus do not charge renewal fees, instead relying on consistent subdomain name sales to generate revenue. Subdomains start from ~$5, with minting and gas fees subsidised by the Unstoppable team.

Some concerns have been expressed within the community regarding this business model, as the lack of name expiry and renewal fees does not discourage domain squatters from permanently hoarding names.

Market Adoption

Since their launch in 2019, Unstoppable has seen over 2.4M domain names registered and integrations with close to 300 dApps and wallets. Integrated protocols include:

• Browsers: Chrome, Firefox, Brave, Opera
• Wallets: Trust Wallet, Moonpay, Rainbow Wallet, Venly
• dApps: Opensea, ShapeShift

Team

Co-founded by Matthew Gould and Bogdan Gusiev, currently CEO and CTO respectively, Unstoppable Domains currently has 89 team members across engineering, business development, customer experience. The size of the Unstoppable Domains team is significantly larger than that of competitors ENS and Handshake, pointing to increased daily expenses.

Financials

Unstoppable Domains have received an initial $4M from series A investors such as Draper Associates, Coinbase Ventures, BoostVC, Protocol Labs in May 2019. In Jul 2019, they have also received a $250K grant from the Zilliqa Foundation to bootstrap the use of .zil domain names.

On 27 Jul 2022, Unstoppable Domains raised $65M in a series A at a $1B valuation. The round was led by Pantera Capital, with other investors including Alchemy Ventures, Spartan Group, Polygon, Coingecko and more.

Conclusion & Key Insights

Crypto Domain Names protocols provide two main benefits to users:

1. Handshake provides users with a distributed infrastructure for access to and maintenance of new Top-Level Domains
2. Ethereum Name Service (ENS) allows for the mapping of of non-human friendly blockchain addresses to human friendly ones, with an emerging competitor in Unstoppable Domains

As adoption of crypto grows and more new users inevitably move on-chain, user experience of wallets and addresses will rise to the forefront of crypto developmental focus. Crypto domain names, much like website domains and Internet before them, may come to play a pivotal role in the formation of a fully on-chain digital identity.

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