In-depth analysis of ENS: Its leading position is unshakable but it lacks a token empowerment mechanism

Original title and link: "ENS sees the light - project and transaction data analysis"

Editor's note: This article was published on July 18. The data cited in the article are all past data, which has been explained.

ENS provides decentralized domain name services and is expected to play a vital role in the Web3 era, but it is also constrained by the development of Ethereum itself.

ENS Project Basic Information

Basic business situation

Ethereum Name Service (ENS) was launched on Ethereum in May 2017. The service provided by ENS is to map user-defined domain names with the suffix .eth to user addresses. For example, when a user needs to transfer money, he only needs to enter vitalik.eth to transfer money without entering a complicated wallet address. When using wallets such as Little Fox to connect to the website, the user's ENS domain name will also be directly displayed on the front end. Each ENS address is an ERC721 NFT, which can be traded on NFT trading markets such as Opensea.

ENS domain name services are charged at a tiered rate based on the length of the domain name.
Domains with a length of ≥ 5 characters: $5 per year;

A 4-character domain name: $160 per year;

A domain name with a length of 3 characters: $640 per year;

Business data performance

The total number of domain name registrations of the ENS protocol has reached 1.12 million. Currently, more than 500 wallets or protocols have been integrated, and the number of users exceeds 400,000.

Among the total historical revenue of all projects, ENS's historical revenue is about $56.7m, ranking 15th among all projects, with strong profitability. Unlike other protocols, the ENS protocol only generates revenue when users make their first purchase or renew their subscription. For nearly 90% of players, there is a 90% probability that they will spend $5 per year on ENS.

Since the ENS airdrop was announced, ENS's revenue data has shown explosive growth, with revenue increasing more than eightfold in the past year. The revenue has exceeded $1.8 million for 11 consecutive months.

From the perspective of business structure, new domain name registration fees are the main source of ENS's revenue, and new domain name registration revenue is more than 10 times the renewal revenue. Currently, most of ENS's revenue is incremental revenue.

ENS registration volume experienced two bursts (as shown in the yellow circles in the figure above):

The first outbreak period ENS announced an airdrop, and a large number of users temporarily participated in the airdrop

The second outbreak period was the ENS domain name hype that began in April 2022.

With the influx of users trying to use ENS, especially domain speculators who buy ENS domain names on a monthly basis, the average registration duration of ENS has been continuously diluted. The current average user registration duration is 1.64 years.

ENS was founded in 2016 by Nick Johnson, a former software engineer at Google. Initially, ENS was a sideline project authorized by the ETH Foundation. Later, the ENS team was established with the support of the ETH Foundation. Currently, there are 16 team members. The team members include CEO × 1, CTO × 1, "Customer Service" × 1, Community × 1, Consultant × 1, and Technology × 7.

ENS has not made any investment since its establishment, and has only received donations from the ETH Foundation, biance_x, etc.

Partners

Currently, there are more than 500 projects that have integrated the ENS protocol. Almost all well-known projects have integrated the ENS protocol. And integrating the ENS protocol is becoming a standard.

Among them, an important sign of partners that cannot be ignored is every user who changes his Twitter username to .eth suffix. This includes crypto Twitter big Vs, ordinary retail investors, VCs, project owners, and even traditional brands such as PUMA.

The .eth domain name has a web3 identity tag, which allows users to "emphasize" their web3 attributes invisibly. And every user with the .eth domain name suffix is ​​a living signboard of ENS.

ENS business data

Valuation boost

If the valuation of ENS shows explosive growth in the future, what factors will drive it?

Revenue (Business): ENS domain name sales continue to surge

Functional side (imagination space): ENS domain names play an important role in the future of web3

The revenue of ENS business can be divided into two parts: stock and incremental:

Stock income refers to the income generated by users renewing their domain names.

Incremental revenue refers to the revenue generated by users purchasing new domain names.

Currently, the ENS protocol has entered a period of rapid expansion, and the number of new ENS domain name registrations continues to grow.

Judging from the revenue composition data in the past year and a half, the renewal income from old users has increased steadily and obviously, accounting for about 10% of the total revenue.

ENS domain name is more like an identity label. The account function represented by ENS has not yet been fully explored. In the web2 era, not everyone needs a domain name, but in the web3 era, a wallet address is essential to enter web3. ENS will have a vast market in the future. As the web3 infrastructure gradually improves and the ecology prospers in the future, ENS will become an important part of DID. ENS will have a lot of room for imagination in the future web3 world.

competitor

As the only seller of .eth domain names in the ETH ecosystem, ENS has exclusive franchise monopoly rights. As a domain name dealer, there is no competitor on ETH, and it is unlikely to have competitors in the future. At present, the ENS brand has been deeply rooted in people's hearts and has become the default standard for projects. Due to the brand advantages, ecological advantages, and especially the first-mover advantages that ENS currently has, it will be difficult for competitors to compete with it in the future.

Token Model Analysis

ENS tokens were first issued on November 9, 2021, with a total supply of 100 million tokens. The token distribution is as follows:

5kw (50%) Treasury [4 years unlock]

• Released when 10% DAO

2.5kw (25%) airdropped to users (>137k accounts) [released immediately]

• Only 1.96kw (78.5%) was claimed.

2.5kw (25%) airdropped to ENS contributors (100 individuals and groups, plus hundreds of Discord users). [Unlocked in 4 years]

• 18.96% Core Development (11 people)

• 0.58% Lauch Advisors (2 people)

• 1.25% Future Contributors

• 1.29% Extemal Contributors(17 people)

• 0.05% Translators (13 people)

• 2.5% Select Integrations(54 people)

• 0.25% Keyholders (10 persons)

• 0.125% Active Discord Users (> 400 people)

The annual inflation rate is up to 2%, with the exact amount determined by the DAO.

Overall, ENS is very web3-friendly and has airdropped 50% of the total tokens to ENS users and contributors. Although the 25% of the total tokens airdropped to ENS contributors have a 4-year unlocking period, such a huge airdrop is bound to cause considerable selling pressure on $ENS tokens in the future.

Basic information of tokens (data sampling time June 29, 2022):

Circulating Supply: 20,244,862.09 ENS (20%)
Max Supply: 100,000,000
Total Supply: 100,000,000
Market Cap: $176,105,477
FDV: $870,415,465
Rank: 135
Coin issuance date: November 9, 2021 Historical highest price: $85.69 (November 11, 2021), the historical highest price of BTC is November 10, 2021.

The $ENS token was issued on November 9, 2021. The market was booming at that time, and BTC reached its all-time high of $6.9w on November 10, 2021. ENS then followed the market down and is currently fluctuating around $9.

Risks facing ENS

1. The development of ETH determines the development of ENS. Therefore, the major risk that ENS will face in the future is the risk that ETH may fall behind in the future public chain competition. However, based on the current development of the ecosystem of investors, technology, users, etc., it is more likely that ETH will maintain strong competitiveness in the future.

2. From last year to this year, ENS has attracted a large number of users who are interested in speculation and trying out new things. When their domain names expire, coupled with the cooling of the crypto market, ENS's revenue data may face pressure to decline sharply in the short and medium term.

3. As for ENS tokens, the ENS project has not empowered $ENS. In addition, 25% of the total tokens will be unlocked in the next 3.5 years, and ENS tokens will be under considerable selling pressure.

4. ENS domain name NFT is still in the midst of a hype, and domain name prices may fluctuate greatly in the short term. The current high-priced domain names may face a sharp drop in price in the future.

ENS Valuation Assessment

The function of ENS is to improve ETH. By taking advantage of the first mover advantage, ENS gradually established a network effect in the domain name field on ETH when ETH was still in its infancy. It also obtained official endorsement and support, and finally obtained the exclusive franchise monopoly right of the ETH ecosystem .eth domain name. Since ENS has a relatively simple business, after completing the development of core functions in the early stage, the subsequent innovation and development pressure is relatively small. ETH is likely to continue to maintain its leading position in the future L1 competition, and ENS can almost get a large piece of the pie from the ETH development dividend in a lying posture.

As crypto expands its market in the future, web3 will gradually move from concept to application. Web3 based on blockchain will inevitably stimulate the demand for readable domain names. ENS sales will also continue to grow predictably as the industry develops. In contrast to the predictable growth in sales revenue, ENS domain names have no cost, and are essentially a business with zero marginal effect.

At present, the user base of ENS is still relatively small, with only 460,000 ENS users. According to the current ENS domain name sales rules, when a large number of new users flock to web3 in the future, users will find that 3- and 4-character domain names have been snapped up, and they can only buy "second-hand" domain names from the NFT market, or register domain names with 5 characters or more. The current proportion of domain names with 5 characters or more is about 91%, and the influx of new users in the future will cause this proportion to continue to rise. In this way, when the number of ENS users reaches a certain scale, ENS's annual revenue will be close to US$5 × user base. Without changing the charging rules, ENS revenue may have an invisible ceiling.

According to the spirit of web3, the user's data, assets and other digital assets are kept by the user himself. The service provided by ENS is just to convert the Ethereum address into a "pretty number" for display. In essence, users still participate in web3 through the Ethereum address. Even if users do not use ENS, they can still participate in web3. Therefore, ENS's value capture of web3 is not a "direct" relationship, but an unnecessary indirect relationship.

Summarize

ENS is a monopoly company that exclusively sells .eth domain names. It has a broad mass base and a deep moat.

The ENS token is not strongly connected to the ENS project. The ENS token can currently only capture the sentiment value of positive news about the ENS protocol.

ENS is a very important part of web3, but not necessarily an indispensable part.

ENS Domain Name NFT Transaction Analysis

Macro perspective

According to Opensea data, there are currently 183,680 ENS domain names on Opensea, accounting for nearly 13% of the total.

Judging from the data of ENS domain names in the NFT market, ordinary users are still the main theme of ENS. More than 70% of users hold one ENS, and about 87% of users have less than or equal to 3 ENS. In terms of holding time, about 55% of users have held for more than 3 months.

Judging from the transaction data of ENS domain names, the liquidity rate of ENS is nearly 5.74%. According to Opensea's transaction data over the past year, especially the transaction data after ENS token issuance, before the domain name speculation boom, the daily transaction volume was only at the level of dozens of transactions, and after the domain name speculation boom, the number of transactions dropped sharply, and currently fell to the level of hundreds of transactions per day. Corresponding to the large plate of ENS, the overall liquidity of ENS domain names is relatively low.

Considering the particularity of ENS domain names, the proportion of domain names with transaction attributes in the overall domain name market is relatively small, and buying and selling depends heavily on "fate." However, at a time when the transaction volume in the NFT trading market is shrinking, the transaction volume of ENS domain names is showing an upward trend against the trend.

The Peculiarity of ENS Domain Name NFT

Quasi-official production

As a project supported by the ETH Foundation, ENS was also praised by Vitalik. ENS is the most successful non-financial Ethereum application to date. Vitalik also changed his Twitter username to vitalik.eth to promote ENS. The ENS project did not accept any external investment and only received funding from various foundations such as the ETH Foundation, thus maintaining the independence of the ENS project. The ENS project can be regarded as the "son" of ETH, and the ENS domain name NFT can be regarded as the NFT officially issued by ETH.

Long-term stable real usage needs and potential application scenarios

The difference between ENS domain name NFT and the current mainstream PFP/PASS card NFT is that ENS domain name NFT meets a long-term and stable real demand, which is to use your favorite .eth suffix domain name instead of the wallet address. This basic demand is difficult to replace.

ENS domain name transaction data analysis

According to NFTGO data, the total historical transaction volume of ENS domain names is 10.954w, and the total transaction volume from November 01, 2021 (announcement of coin issuance) to July 06, 2022 is 10.509w, accounting for 95.9% of the total transaction volume. The total transaction volume from April 27, 2022 (the first day of ENS domain name speculation) to July 6, 2022 is 9.247w, accounting for 84.4% of the total transaction volume. ENS domain name transactions in the past three months account for an absolute proportion of the total transaction volume, and all subsequent data in the past three months will be used as the time interval for analysis.

Microscopic perspective

Data statement:
Data collection scope: April 25, 2022 - July 7, 2022

The data captured by the API used this time contains some errors. The reasons include using other ERC20 tokens as settlement currencies, errors caused by API reasons, and batch transactions cannot find the transaction amount of a specific single NFT. Data with various error reasons will be ignored. Transactions with a transaction amount less than 0.001Ξ will be ignored.

The data analysis made in the following part of this article is inevitably wrong and is not used as any investment reference

In summary: the number of valid statistical transaction samples is 94,883.

ENS domain name classification:

Using the classification method in the ENS official API, a domain name has two attributes:
length: The length of the domain name in characters

trait_type: Domain name characteristics

• digit: pure numeric domain name

• letter: pure English letter domain name

• alphanumeric: contains only numbers and characters (Chinese, English, Arabic, etc. are all considered characters)

• Mixed: Domain names containing special characters, such as emoticons, punctuation marks, etc.

From the perspective of price range:

Among all transactions, the transaction amount <0.1Ξ accounted for 66.94%, and the transaction amount <1Ξ accounted for 91.84%. There were only 623 transactions with a transaction amount greater than >5Ξ, accounting for only 0.66%. Judging from the transaction data results, low-priced ENS domain names are the mainstream of transactions. The data shows that the average price of all transactions is 0.344Ξ. The 25% percentile price is 0.02Ξ, the 50% percentile (median) price is 0.05Ξ, and the 75% percentile is 0.18Ξ.

The transaction price >1Ξ accounted for nearly 8.16% of the transaction volume and contributed nearly 68% of the transaction volume. In particular, the transaction price >5Ξ accounted for 0.66% (623 transactions) of the transaction volume and contributed 30% of the transaction volume. Combined with the transaction volume, the transaction volume contributed by the top 0.66% of exchanges is comparable to that contributed by 91.84% of exchanges.

The transactions of ENS domain name NFT are divided into three ranges: transaction amount <1Ξ, between 1-5Ξ, and >5Ξ. There is an order of magnitude difference in the number of transactions in these three price ranges, but the transaction amount is close to 1:1:1. The surging transaction wave of ENS is mainly provided by transactions with transaction prices greater than 1Ξ. These "big fish" are the promoters of the wave and the contributors to the bubble.

From the perspective of ENS domain name category

Judging from the median and mean transaction prices of domain names in various categories, only the average transaction price and median transaction price of 3-digit and 4-digit domain names can significantly exceed the gas fee when the ETH main network is congested. In addition to these two categories of domain names, the average transaction price and median transaction price of other types of domain names are lower. Combined with the poor liquidity of NFT transactions, investing in these domain names may have a higher liquidity risk.

From the perspective of domain name categories, digital domain names are the largest component in terms of both transaction volume and transaction amount. For other types of domain names, the relationship between transaction volume and transaction amount does not match. Simply put, digital domain names are both popular and profitable. Alphabet and text domain names are popular but not profitable, and mixed domain names are neither popular nor profitable.

In the digital domain name segment, 3-digit domain names account for 1% of the transaction volume and 29% of the transaction amount. 4-digit domain names account for a large proportion in terms of both transaction volume and transaction amount.

From the proportion of the TOP10 - 100 transactions of various digital domain names in the total transaction volume, it can be seen that the top transaction amounts of 3-digit and 5-digit domain names account for nearly 50%, indicating that some special domain names are sold at a price far exceeding similar ones. In essence, it is a few transactions that have raised the overall transaction volume, rather than "common prosperity."

The data shows that the number of transactions for 3-digit domain names is 522, and there are 344 3-digit domain names with transaction records. The number of transactions for 4-digit domain names is 12,790, and there are 6,135 4-digit domain names with transaction records. The number of transactions for ≥5-digit domain names is 28,118, and there are 24,418 ≥5-digit domain names with transaction records. From the above transaction data, it can be seen that the liquidity of 4-digit domain names is the highest among digital domain names.

Overall, 4-letter domain names are the most cost-effective investment targets among digital domain names.

Other types of domain names

For other types of domain names, there are too many domain name combinations, and the total number of domain names with scarcity is relatively small. In the process of investing in this type of domain name, the difficulty of selecting investment targets is much greater than that of digital domain names. In addition, in these domain name transactions, the proportion of TOP exchanges in the total transaction volume is too large. With such a large proportion of the top transaction amount, the average transaction price and median are still low. Compared with digital domain names, it is more difficult to invest unless you encounter a significantly better domain name.