In this post, I want to walk you through my view of ENS domains, their current and future use, and expected prevalence and value over the coming years. I have held this view for over a year now, and it has only grown stronger with time.
To explain my thesis, I first need to start with the current and future state of NFTs. NFTs are generic digital objects that can be taken with you to any application or website that lets you connect your wallet. If you currently own any NFTs, you’ll know you can log into the Rainbow app, see them all and transfer them to friends, and then log onto Open Sea and find the same ones and list them for sale. NFTs can be or represent anything: art, music, concert tickets, awards, certificates, video game items, social connections, domain names - anything. If you want to read a more comprehensive view of what these examples will look like, check out my essay, What Problem Does Web3 Solve, Anyway? My thesis hinges on the prediction that over time, increasingly more applications will allow you to connect your wallet and display your NFTs, as Instagram did most recently.
The thing that makes NFTs interesting is that they are unbound to specific applications. They don’t live on Instagram, Facebook, or Google. Instead, they live on a neutral blockchain that anyone can plug into and use. They can live anywhere that lets you connect your wallet. Any app can do this.
As I’ve suggested above, I believe we should expect to see a tidal wave of applications that both issue NFTs and let you connect your wallet to display other NFTs that you own. As a result, switching costs for users of these applications will drop. User accounts and their content will no longer be tethered to specific applications.
To help provide a visual of what this world will look like, imagine Instagram lets you connect your wallet and allows you to mint your photos as NFTs. I favor Twitter over Instagram, and because I know your ENS domain, I can find and follow your wallet on Twitter. As you post on Instagram, I’ll see your newly minted photos without needing to open Instagram. A critical point here is that I'm not forced to use Instagram to see your content; I can see your content on any application that lets me search for and find your wallet. This is where the concept of a universal namespace becomes critical.
In the same way that you expect to be able open any web browser or search engine, type in a domain name, and find a specific website, you’ll be able to open any web3-connected application, type in a .eth domain, and find someone's wallet.
Wallets will become universal accounts and profiles that any application can connect to and update, while ENS domains will become universal handles for those accounts.
All applications that allow users to connect their wallets will have the ability to become web3 browsers and search engines. If I know your ENS domain, I will be able to open any web3-connected app and find your account, even if you’ve never used that specific app before.
After I had this realization over a year ago, I started registering as many domain names as I could think of. The very first NFT I ever owned was an ENS domain. My thesis was simple:
This thesis has largely remained unchanged, even as we plunge into the depths of a new bear market.
This is where I inevitably make some enemies. The current state of ENS domain investing is a mess. Just scroll through the ENS sales twitter account, and you'll see that 90% of domains purchased are digits and random hyphenated trash. These domains, for the most part, aren't being purchased to be used legitimately in the ways I described above. It seems that the vast majority of people buying these are doing so solely with the intention to sell them to someone else for a higher price. This could be a sound investment thesis, if they expected their potential buyer to want the domain for its own sake. However, I fail to see why anyone would want to spend 100 ETH on a digit domain that isn't especially remarkable, and then use that as a domain name forever, without ever secretly hoping that someone else will make them a higher offer. I agree that some digits are especially remarkable, like 007, however, these are rare, and are probably the only digits that are actually going to be valuable in the long run.
In order for an ENS domain to be a sound investment, in my opinion, you need to have a specific buyer in mind that you believe is likely to buy in the future because of the domains utility.
I would count the following as potentially good domain investments: Company brand names, large company misspellings, the names of famous peoples, the names of exceptionally wealthy people, common first names, common last names, common words, potential company names. The last three are still the equivalent of throwing a dart at the wall hoping to hit a bullseye where a rich person with that name is willing to buy it. Everything else is almost certainly a bad investment. Digits are an exception as there's a bubble caused by fomo. But I do not expect this to last.
I’m not a lawyer. Talk to a lawyer.
On squatting more generally though, it’s generally considered incredibly negative and harmful by everyone who isn’t engaged in the practice. And I believe this view is mostly correct. If all possible domains were held by squatters with an asking price of a $1,000,000 each, then we won’t ever see real adoption. I think this is reasonable enough to worry about, and squatting should generally be discouraged. There is an easy bias to fall into however, where one believes themself to be an exception: so long as I’m the only one doing it, it will be fine.
Squatting can also be reasonably considered a form of blackmail, where domains are held hostage for ransom, the price of which is set by the net worth of the buyer. As a result, the best domains to sit on end up being those associated with the deepest pockets.
Putting the legality of this aside, is this inherently unethical? Probably. I can’t come up with a coherent counter argument that doesn’t revolve around my pure unadulterated greed.
The degree to which most are okay with this is dependent on who they are blackmailing. If you hold the domain name “blackrock.eth” hostage for $10,000,000, it would be an unnoticeable amount for the largest asset manager in the world. Should one feel bad for taking the money? I would bet that most would argue no.
The key insight that I want to convey here is that utility is king. Without the integration of ENS domains like I described above, none of these domains will be worth anything. Unless apps and companies start issuing NFTs, allowing users to connect their wallets and search for wallets via ENS, then they won't ever be anything more than a niche speculation and status game, like it is right now.