The ENS Airdrop and the Future of DAOsMatthew Sigel, Head of Digital Assets Research - Van Eck Associates CorporationNovember 17, 2021
There are 200M active websites in the world right now and one U.S. company—Verisign—maintains 172M of them.1 Verisign has a long-term, no-bid contract with an unelected international body (ICANN), which has been repeatedly renewed at the request of the U.S. government, who considers the service crucial infrastructure.
On revenues above $1B, Verisign hasn't spent more than $100M in capex since it jettisoned its cryptographic hash business ("issuer of digital certificates") to Symantec to focus on the monopoly registry business in 2011, meanwhile growing its topline at an astounding 18% CAGR since 1998. Verisign's 63% operating margins and the stock's 21% 10-year CAGR are further proof of privilege.2
And yet like so many Web 2.0 platforms, Verisign now faces potential disruption from an open, interoperable, community-owned protocol that lets small business operators not only own their own domain name, but also potentially collect a financial reward from the growth of Web3. Such is the promise of the Ethereum Name Service (ENS), a distributed, open and extensible system based on the Ethereum blockchain.
The Ethereum Name Service's job is to map human-readable names like Sigel.eth to machine-readable identifiers such as Ethereum addresses, other cryptocurrency addresses, content hashes and metadata. Registering a name costs $5/year for 5+ character names, $160/year for 4 character names, and 3 character names at $640/year, plus the cost to mint the address as an NFT, which can run around $100 at current gas prices.3 ENS users can use the NFT to store all of their crypto addresses, and to receive any cryptocurrency or NFTs to their ENS smart contract. Decentralized website developers can then upload their website files to IPFS (a distributed file storage network) and save the hash to their ENS name. Voila! Decentralized commerce, no Verisign!
I had a vague idea of the utility last month when I set up my .eth address. It wasn't so much I was afraid my name would be taken by a squatter (as VanEck's was), as much as an appreciation that Sigel.eth might someday form the basis of a new social media presence or family business, and $25 for 5 years was good value given that Budweiser had paid $95,000 for beer.eth. I had no expectation that the developers behind ENS would transform their "multisignature" leadership into a decentralized autonomous organization (DAO) and launch a token, which was then airdropped to all users (now 178,000) based on how long they've owned their ENS names and for how long they are registered.
Claimants then ratified a "Constitution" outlining governance responsibilities, which include control over how ENS funds are to be allocated. Could the ENS model include distributing some portion of registration fees or resales to ENS token-holders going forward? For the DAO's part, Brantley Millegan, ENS' director of operations, told Cointelegraph that “there is no profit sharing motive” but that the token-based DAO system “allows for a large amount of flexibility.”4
NFT platform OpenSea already supports secondary ENS transactions, reporting 7-day ENS domain volume of $1.7M.5 At the peak token price of $83 last week, my 122 ENS tokens were worth more than $10,000 on a $25 investment, obviously reflecting market expectations of further monetization.6 Indeed according to IRS law, the ENS airdrop is a taxable event despite the fact I and many others bought our addresses with no expectation of profit. I expect we'll see the Supreme Court rule on airdrops this decade. By then, ENS' market cap of $800M may have taken another bite from Verisign's $26B monopoly.
Number of New ENS Addresses Registered Daily (Total = 449k)
Source: Dune Analytics, as of 11/15/2021.
Number of .com & .net Domains Administered by Verisign
Source: Verisign, as of Q3 2021.
As a final comment, the ENS DAO provides a roadmap for other user-created networks. On November 18, Sotheby’s will host an auction for a historic first printing of the U.S. constitution (the only one of 13 still in private hands).7 A crypto group called ConstitutionDao has launched a crowdfunding platform aiming to purchase the document. In three days the DAO has collected $13.1M out of its $20M target from anonymous contributors.8
If successful, donors would receive a governance token that allows DAO members to advise on where the Constitution should be displayed, how it should be exhibited and the mission and values of the DAO. That participants will own the governance and not the item may temporarily shield the project from security registration requirements. As we saw from the ENS airdrop, however, the free market may have other ideas when it comes to valuing these intangible governance assets. One idea is to register the name ConstitutionDao.sol (still available!) via Bonfida’s Solana Naming Service9, which is currently accepting bids but has not announced a token. Perhaps the lucky winner will have two airdrops to report.
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- Siteefy.com, Verisign
- Bloomberg, Verisign; as of Q3 2021
- Ethereum Name Service, VanEck research
- Cointelegraph interview, 11/10/2021
- CoinMarketCap.com, Metamask
- WSJ, “Crypto investors want to buy rare copy of U.S. constitution.” 11/16/2021
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Authored byMatthew Sigel
Head of Digital Assets Research - Van Eck Associates Corporation