DAO Dynamics: ENS's Present Picture

Introduction

Ethereum Name Service (ENS), a decentralized application on the Ethereum blockchain, has emerged as an innovative way to navigate and interact with digital assets. The service enables Ethereum users to mint and trade Non-Fungible Tokens (NFTs) that correspond to domain names. These domains serve as digital addresses where funds can be sent and received, and they can also be used as identifiers on various apps.

Much like traditional website domains, shorter and more memorable ENS domains are generally more desirable, often commanding a higher value. These domains not only enhance the visibility of a user's wallet address but also simplify interactions within the Ethereum network, thus offering substantial value to users.

This article will present an in-depth analysis of the ENS landscape. We'll explore the rate at which new ENS domains (NFTs) are being minted and the secondary market activity for these NFTs. We will also examine the fees collected by the ENS Decentralized Autonomous Organization (DAO), and the current state of its treasury.

Additionally, we'll provide an overview of the distribution of ENS governance tokens. These tokens play a crucial role in the management and decision-making processes within the ENS DAO. By exploring these aspects, this article aims to provide a comprehensive understanding of the ENS and its role in the broader Ethereum ecosystem.

Protocol Use Metrics

The first graphic in this article provides a detailed account of the minting activity of ENS NFTs and the number of holders by NFTs held. This visualization offers significant insights into the trends and behaviors surrounding the ENS NFT market.

As per the graphic, the end of 2022 witnessed a remarkable surge in both the number of ENS NFT mints and ENS NFT minters. However, post this spike, there has been a general downtrend in minting activity. At present, the data shows a steady volume of activity, with a few hundred people minting these NFTs and a few thousand ENS NFTs being minted per week.

Looking at the distribution of holders, it's evident that ENS NFTs have been widely adopted, with approximately 700,000 wallets holding at least one ENS NFT. A significant portion of these wallets, about 500,000, hold just a single ENS NFT, indicating that many users have entered the market primarily as consumers, rather than investors. However, it's also worth noting that there's a small, but notable group of around 7,500 wallets that hold more than 50 ENS NFTs, suggesting a segment of heavy users or investors.

Secondary Sales activity

Firstly, the data highlights a significant increase in secondary market NFT volume and the number of users during the latter half of 2022, extending into 2023. Though this spike has been followed by a general decline, current activity levels still surpass those observed in the first half of 2022 and throughout 2021. At present, there are between 500 and 2,500 users buying ENS domains on the secondary market per week, down from a peak of 5,000 to 50,000 users during the zenith of secondary NFT purchase activity.

The vast majority of ENS domains are traded on either OpenSea or platform XY2, with only a minor fraction of these NFTs being sold on other platforms. OpenSea's prominence in this context is particularly noteworthy, given its appeal to casual users.

Analyzing the above data in conjunction with the fact that nearly 500,000 wallets hold only one of these NFTs, an interesting conclusion emerges. It appears that the majority of people purchasing these NFTs are motivated by the inherent value they offer in terms of utility, rather than speculation for future resale. This could be indicative of a broader trend within the NFT market, where utility-based NFTs like ENS domains are increasingly being valued for their functional attributes rather than solely as investment opportunities.

DAO Revenue and Assets

According to the data, weekly fee revenue has been on a declining trend since February, decreasing from around $400,000 a week to just under $200,000 currently. This trend appears to be correlated with the documented decline in both minting and secondary sales activities throughout 2023, as DAO revenue is derived from fees on the initial minting of an ENS NFT, as well as a recurring annual fee for holding these NFTs.

In light of this, the drop in revenue, while not ideal, is not surprising. It's a reflection of the dynamic nature of the NFT market and mirrors the overall trends in the activity.

Moving on to the DAO's treasury, it holds an impressive $50 million in assets, with a breakdown of roughly 40% in stablecoins and 60% in Ethereum. This sizable treasury, coupled with a current annual revenue generation of around $10 million at the present fee rate, suggests the DAO has a healthy financial reserve.

ENS Tokenomics

The initial token distribution was categorized into four distinct sections. Fifty percent of the tokens were allocated to the DAO treasury, twenty-five percent were airdropped to the protocol users, and the remaining twenty-five percent were set aside for protocol contributors. The distribution strategy implemented a mix of immediate airdrops and vested allocations.

As of the current data, out of the 25 million tokens reserved for protocol contributors, around 12 million have been distributed, with another 13 million to be progressively distributed until March 2025. The rest of the tokens reside in the DAO Treasury. The governance of these tokens lies in the hands of token holders, empowering them with decision-making rights over future distribution.

Currently, with 30 million tokens in circulation, the token holders will face dilution by about 30% from core holders by mid-2025. This does not account for potential further dilution from governance decisions made for the allocation of tokens held in the DAO treasury.

Conclusion

Presently, the ENS token carries a market cap of approximately $271 million, which would rise to around $360 million when considering future token distributions to contributors. The protocol generates a weekly revenue of about $200,000, translating to an annual revenue of around $10.5 million. In addition to the revenue stream, the DAO boasts of a substantial treasury, holding about $50 million in assets, predominantly in stablecoins and wrapped Ethereum.

When we consider the valuation of the DAO after subtracting the treasury holdings, the DAO is being valued between 21 and 31 times its current annual revenue. This indicates that the market has priced in not only the current earnings but also the potential future growth of the ENS ecosystem.

Despite recent declines in minting activity and fee revenue, the ENS marketplace continues to sustain a considerable user base, and the ENS DAO maintains a healthy financial position.