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Hi guys,
Recently, I was thinking about how unprecise the domain valuations still are when it comes to new gTLDs (generic Top-Level Domains (gTLDs) like .life, .world, and .online) and how to put more of these new domain names to development.
In this post (my first after 4 years, I guess!), I want to discuss how tokenization and Decentralized Autonomous Organizations (DAOs) could potentially revolutionize domain valuation and speed up their development.
Understanding two main problems with new gTLDs in 2024
At present, if you are the owner of a new gTLD registry (that means you are the owner of one or a few new extensions) or a private domain investor with some amount of good-quality new gTLDs like me, you will probably agree that we have two main problems:
Problem no.1: the amount of development of domain names should be more significant:
For example, I own domain names like alien.life or new.properties. Indeed, these can form super brands for their respective areas. While I have plans to develop some of my domain names, it is inevitable that, as an individual, I can develop (or organize some joint ventures for) only a few of them at any given time.
The same goes for registries, where some bigger registries own thousands of great new gTLDs. However, registries usually do not develop them, and if there are some exceptions, they are rare.
So, both private investors (domainers) and registries are "sitting" on extensive inventories of high-quality domain names. Both parties are also patiently waiting for offers from other parties. Sometimes, we see great sales, which happens in case a very motivated buyer with a significant budget and lust for just that specific domain name happens to approach domain holders. However, most domain names are just waiting for the opportunity to be put into use, as potential buyers usually do not have sufficient funds to purchase these grail domains or do not understand the value of such domains. So we have a problem with liquidity here.
Underestimating the value of great domain names leads us to a second problem with new gTLDs:
Problem no.2: valuations of new gTLDS are usually on the lower end and pretty unprecise
Many entities (mainly domain registrars (domain resellers) and domain brokers) claim they can give you a valuation of new gTLD domain names. While in the .com era, this was pretty straightforward, in the era of new gTLDs, when we have hundreds of extensions, this task is much more complicated. In 2020 I wrote about some problems with the valuations of new gTLD in my article HERE, hoping to see some improvements, but everything has stayed the same. Valuations are still unprecise and, in many cases, do not make any sense.
For example, these days, one party values my domain name new.properties as worth 2040 USD. But what does that mean for me as a domain owner? Does this number tell me that when I have my domain name with BIN = USD 2040, it will sell within 1 day? Or 1 week? Or 1 year? Or ... if a student from a rich family wants to do his school project about new properties, will this be the price he will pay me? Or if a billionaire real estate mogul wants to develop a global website about new properties on various continents for his wealthy clientele, is this the fair price he will pay for the domain name? Is this the maximum price he will or can pay?
Number 2040 absolutely does not make sense when provided without any context. The valuation of a domain name should be a multidimensional vector array containing several values for several scenarios (seller in stress, the seller can hold, etc), time frames (immediate liquidation, the seller can hold 1 year, 10 years, etc), buyer types (poor student, fellow domain investor, millionaire, billionaire), etc. Of course, for human beings, such much more precise (and truthful) answer would be unusable (unless we speak about very knowledgeable domain owners). A typical domain owner wants to know 1 number: a domain valuation. But if that number does not make sense for one party, be it the domain seller or domain buyer, we are again stuck in limbo, and there is again a problem with the liquidity of the domain names, and transactions are halted.
Because of that demand, I think the most logical way would be to use "market forces" to evaluate the domain name. and to get a "fair valuation". But how to do it?
I believe both problems (better valuations and getting more domain inventory for actual use) can be solved by blockchain technology and domain tokenization.
Tokenizing New gTLDs: A Beginner's Guide
What is Tokenization? Tokenization in the context of domain names involves converting the ownership rights, responsibilities, and benefits of domain names into digital tokens on a blockchain. These tokens are digital certificates proving ownership rights, responsibilities, and benefits, similar to a title deed but in a digital format that can be easily traded or sold. Basically, we are creating new internet coins here.
Let's imagine domain name new.properties: on some blockchain (for example, Solana or Base); one can initially create 100, 000, or 1000 000 (or any number of coins, really) with the symbol NEWP.
Reminder: Before you start creating new tokens (coins), you need to make sure this whole process is legal in your jurisdiction. Also, offering these coins to other market participants later must be legal; otherwise, do not do it. In some jurisdictions, various mandatory disclaimers are required. In further text, I will presume all these activities are legal in your jurisdiction so we can go to the more technical side of it...
Why Tokenize Domains?
That all sounds nice and good (and solves our problem no. 2), but why would anyone want to purchase a fraction of domain name new.properties for let's say 100 USD? In other words, why would anyone want to exchange 100 USD to get 100 NEWP??? What would be the BENEFITS of such a purchase? For this, we need to understand another blockchain concept, the concept of DAOs.
Understanding DAOs: Governance on Blockchain
What is a DAO? A DAO, or Decentralized Autonomous Organization, is essentially an organization run by rules encoded as computer programs called smart contracts. DAOs operate on a blockchain, which means they function in a transparent and secure environment without the need for a central authority.
Role of DAOs in Managing Domains
In other words, DAOs are typically a global group of people, who have one thing in common: a shared interest. In this case, the shared interest would be to develop or somehow positively utilize the domain name new.properties, as they all hold its governance token, a NEWP.
Now, more people with shared interests have more energy, more ideas, and (in theory) more execution power than a single person, or even a registry. This can lead to better chances for the domain name to be developed into something really useful. After all, there is a direct correlation between domain token price and the status of its development or business performance: the more profit from the domain name (or the higher expectations of future development potential) the higher the token price, and the higher domain valuation for a specific domain.
Vice-versa, if DAO is not very functional and is doing nothing for the domain name development/promotion/advertisement, the token price will most probably go down (and will correctly reflect the current problems of DAO members)
Navigating the Challenges
Regulatory Hurdles: Blockchain applications in real assets, like domains, face a complex regulatory landscape that varies by jurisdiction. Navigating this will require legal expertise and cooperation with regulatory bodies to ensure compliance.
Technological Barriers: Implementing blockchain technology for domain management is not trivial. It requires robust technical solutions to handle issues like transaction speed, data privacy, and integration with existing domain registration systems.
Adoption by the Industry: For tokenization and DAOs to truly take off, they must be embraced by key players in the domain industry. This includes registries, registrars, and investors who will need to understand and trust the technology.
First Steps Toward Implementation
But if we overcome all this, we can live in a world where thousands of domain names are developed by thousands of DAOs, bringing something useful to the world while unlocking liquidity for early new gTLD adopters, be it registries or private domain investors.
Conclusion
Tokenization and DAOs offer a futuristic but achievable path to enhancing how we value, manage, and transact domain names. By leveraging blockchain technology, the domain industry can step into a new era of efficiency.
Let’s start a conversation about this! What are your thoughts on tokenizing domain names? Do you think DAOs could be the future of domain development? I’m eager to hear your opinions.
Best regards,
Marek
(Disclaimer: I have used chatGPT and Grammarly tools to better express some points and to make the article more readable)
Recently, I was thinking about how unprecise the domain valuations still are when it comes to new gTLDs (generic Top-Level Domains (gTLDs) like .life, .world, and .online) and how to put more of these new domain names to development.
In this post (my first after 4 years, I guess!), I want to discuss how tokenization and Decentralized Autonomous Organizations (DAOs) could potentially revolutionize domain valuation and speed up their development.
Understanding two main problems with new gTLDs in 2024
At present, if you are the owner of a new gTLD registry (that means you are the owner of one or a few new extensions) or a private domain investor with some amount of good-quality new gTLDs like me, you will probably agree that we have two main problems:
Problem no.1: the amount of development of domain names should be more significant:
For example, I own domain names like alien.life or new.properties. Indeed, these can form super brands for their respective areas. While I have plans to develop some of my domain names, it is inevitable that, as an individual, I can develop (or organize some joint ventures for) only a few of them at any given time.
The same goes for registries, where some bigger registries own thousands of great new gTLDs. However, registries usually do not develop them, and if there are some exceptions, they are rare.
So, both private investors (domainers) and registries are "sitting" on extensive inventories of high-quality domain names. Both parties are also patiently waiting for offers from other parties. Sometimes, we see great sales, which happens in case a very motivated buyer with a significant budget and lust for just that specific domain name happens to approach domain holders. However, most domain names are just waiting for the opportunity to be put into use, as potential buyers usually do not have sufficient funds to purchase these grail domains or do not understand the value of such domains. So we have a problem with liquidity here.
Underestimating the value of great domain names leads us to a second problem with new gTLDs:
Problem no.2: valuations of new gTLDS are usually on the lower end and pretty unprecise
Many entities (mainly domain registrars (domain resellers) and domain brokers) claim they can give you a valuation of new gTLD domain names. While in the .com era, this was pretty straightforward, in the era of new gTLDs, when we have hundreds of extensions, this task is much more complicated. In 2020 I wrote about some problems with the valuations of new gTLD in my article HERE, hoping to see some improvements, but everything has stayed the same. Valuations are still unprecise and, in many cases, do not make any sense.
For example, these days, one party values my domain name new.properties as worth 2040 USD. But what does that mean for me as a domain owner? Does this number tell me that when I have my domain name with BIN = USD 2040, it will sell within 1 day? Or 1 week? Or 1 year? Or ... if a student from a rich family wants to do his school project about new properties, will this be the price he will pay me? Or if a billionaire real estate mogul wants to develop a global website about new properties on various continents for his wealthy clientele, is this the fair price he will pay for the domain name? Is this the maximum price he will or can pay?
Number 2040 absolutely does not make sense when provided without any context. The valuation of a domain name should be a multidimensional vector array containing several values for several scenarios (seller in stress, the seller can hold, etc), time frames (immediate liquidation, the seller can hold 1 year, 10 years, etc), buyer types (poor student, fellow domain investor, millionaire, billionaire), etc. Of course, for human beings, such much more precise (and truthful) answer would be unusable (unless we speak about very knowledgeable domain owners). A typical domain owner wants to know 1 number: a domain valuation. But if that number does not make sense for one party, be it the domain seller or domain buyer, we are again stuck in limbo, and there is again a problem with the liquidity of the domain names, and transactions are halted.
Because of that demand, I think the most logical way would be to use "market forces" to evaluate the domain name. and to get a "fair valuation". But how to do it?
I believe both problems (better valuations and getting more domain inventory for actual use) can be solved by blockchain technology and domain tokenization.
Tokenizing New gTLDs: A Beginner's Guide
What is Tokenization? Tokenization in the context of domain names involves converting the ownership rights, responsibilities, and benefits of domain names into digital tokens on a blockchain. These tokens are digital certificates proving ownership rights, responsibilities, and benefits, similar to a title deed but in a digital format that can be easily traded or sold. Basically, we are creating new internet coins here.
Let's imagine domain name new.properties: on some blockchain (for example, Solana or Base); one can initially create 100, 000, or 1000 000 (or any number of coins, really) with the symbol NEWP.
Reminder: Before you start creating new tokens (coins), you need to make sure this whole process is legal in your jurisdiction. Also, offering these coins to other market participants later must be legal; otherwise, do not do it. In some jurisdictions, various mandatory disclaimers are required. In further text, I will presume all these activities are legal in your jurisdiction so we can go to the more technical side of it...
Why Tokenize Domains?
- Liquidity: By converting domain rights into tokens (coins), they can be bought and sold on digital exchanges, much like stocks. This makes it easier for domain owners to sell their assets quickly if needed.
- Market-Driven Valuation: Instead of relying on appraisals or historical sales data, the market itself will dictate the value of domain tokens through trading activities. This dynamic pricing mechanism ensures that the domain's price at any given time reflects its current market demand.
- Fractional Ownership: High-value domains often represent a significant investment. Tokenization allows multiple investors to own "parts" or "shares" of a domain, making it more accessible for smaller investors.
That all sounds nice and good (and solves our problem no. 2), but why would anyone want to purchase a fraction of domain name new.properties for let's say 100 USD? In other words, why would anyone want to exchange 100 USD to get 100 NEWP??? What would be the BENEFITS of such a purchase? For this, we need to understand another blockchain concept, the concept of DAOs.
Understanding DAOs: Governance on Blockchain
What is a DAO? A DAO, or Decentralized Autonomous Organization, is essentially an organization run by rules encoded as computer programs called smart contracts. DAOs operate on a blockchain, which means they function in a transparent and secure environment without the need for a central authority.
Role of DAOs in Managing Domains
- Democratic Management: Members of a DAO can propose and vote on initiatives concerning the domain's development, such as launching a related website or marketing strategies. This collaborative approach ensures that every stakeholder has a voice in the decision-making process.
- Automated Operations: Since DAOs run on smart contracts, many operational aspects can be automated. For example, revenue generated from a domain can be automatically distributed among token holders based on predefined rules.
- Enhanced Security and Transparency: All transactions and votes within a DAO are recorded on the blockchain, providing a tamper-proof ledger of all actions taken. This transparency builds trust among participants and makes managing collective assets straightforward.
In other words, DAOs are typically a global group of people, who have one thing in common: a shared interest. In this case, the shared interest would be to develop or somehow positively utilize the domain name new.properties, as they all hold its governance token, a NEWP.
Now, more people with shared interests have more energy, more ideas, and (in theory) more execution power than a single person, or even a registry. This can lead to better chances for the domain name to be developed into something really useful. After all, there is a direct correlation between domain token price and the status of its development or business performance: the more profit from the domain name (or the higher expectations of future development potential) the higher the token price, and the higher domain valuation for a specific domain.
Vice-versa, if DAO is not very functional and is doing nothing for the domain name development/promotion/advertisement, the token price will most probably go down (and will correctly reflect the current problems of DAO members)
Navigating the Challenges
Regulatory Hurdles: Blockchain applications in real assets, like domains, face a complex regulatory landscape that varies by jurisdiction. Navigating this will require legal expertise and cooperation with regulatory bodies to ensure compliance.
Technological Barriers: Implementing blockchain technology for domain management is not trivial. It requires robust technical solutions to handle issues like transaction speed, data privacy, and integration with existing domain registration systems.
Adoption by the Industry: For tokenization and DAOs to truly take off, they must be embraced by key players in the domain industry. This includes registries, registrars, and investors who will need to understand and trust the technology.
First Steps Toward Implementation
- Educational Initiatives: Providing resources and training sessions for domain registries and investors can demystify the blockchain technology and showcase its benefits.
- Pilot Projects: Launching small-scale pilot projects can demonstrate the practical applications and benefits of domain tokenization and DAOs, serving as proof of concept.
- Partnerships with Tech Experts: Collaborating with blockchain developers and technology experts can help bridge the gap between traditional domain registration and cutting-edge blockchain applications.
But if we overcome all this, we can live in a world where thousands of domain names are developed by thousands of DAOs, bringing something useful to the world while unlocking liquidity for early new gTLD adopters, be it registries or private domain investors.
Conclusion
Tokenization and DAOs offer a futuristic but achievable path to enhancing how we value, manage, and transact domain names. By leveraging blockchain technology, the domain industry can step into a new era of efficiency.
Let’s start a conversation about this! What are your thoughts on tokenizing domain names? Do you think DAOs could be the future of domain development? I’m eager to hear your opinions.
Best regards,
Marek
(Disclaimer: I have used chatGPT and Grammarly tools to better express some points and to make the article more readable)
