Opinion by: Fred Hsu, co-founder and CEO at D3
A small business owner is holding onto a premium domain like organic.shop but struggles for months to find a willing buyer at their desired price.
Meanwhile, someone thousands of miles away has just purchased a piece of a Manhattan apartment through tokenized real estate in less than five minutes.
This stark contrast highlights an inconsistency in our digital economy. While the real-world asset (RWA) tokenization market is moving toward a $400 trillion addressable market, the domain industry remains ensnared in Web2 illiquidity despite overseeing 360 million registered domains and a $10 billion premium segment.
If the domain industry continues to reject tokenization, it will witness billions in lost value and cede market share to Web3 naming systems like ENS.
While stocks, real estate, and carbon credits have adopted blockchain-driven liquidity, domains risk becoming the internet’s illiquid relics.
The tokenization wave domains are missing
Tokenization has radically changed how valuable assets are traded worldwide. Tokenized treasuries now amount to over $7 billion, giving instant liquidity to typically sluggish government securities.
Fractional ownership platforms enable small investors to buy shares in Manhattan skyscrapers or patent portfolios that were once only available to institutions.
Smart contracts eliminate brokers, escrow services, and paperwork that slow down asset transfers. Settlements can occur in minutes instead of weeks, with global markets functioning 24/7 instead of only during business hours in specific locations.
The technology is readily available to transform domain trading today. The real question is why an industry rooted in digital innovation continues to accept outdated methods.
The antiquated domain economy
Selling a domain now feels remarkably similar to practices from 1999. Completing an average domain sale takes anywhere from three to six months. Brokers demand 15%-30% commissions compared to less than 1% for tokenized assets.
Geographic and financial barriers restrict potential buyers. A talented entrepreneur in Lagos might envision a perfect use for a premium domain, yet lacks access to conventional payment systems or credit options typically mandated by domain brokers.
Due to these barriers, less than 1% of registered domains trade annually, highlighting a significant economic inefficiency in a market that could be worth hundreds of billions of dollars.
The absurdity rises when we acknowledge that domains are pure digital assets, which should ideally be much more liquid than physical real estate or paper securities. Instead, they are trading less efficiently than either of those categories.
The innovation penalty grows
This liquidity crisis brings forth a series of problems that go beyond sluggish sales processes. Premium domains hold substantial trapped value that could stimulate innovation if properly unlocked through modern financial systems.
Startups cannot use domains as collateral for DeFi loans because conventional banking does not recognize digital assets. DeFi protocols struggle to verify domain ownership through outdated registrar systems. This funding gap constrains entrepreneurial opportunities surrounding premium digital real estate.
Voice.com was sold for $30 million in 2019, but that deal took months of negotiation and precluded potentially higher fractional bids from smaller investors who might have collectively valued the asset more than any single purchaser.
Related: Early Bitcoin domains head to auction
Web3 naming systems such as ENS are gaining traction, partly because they provide native blockchain integration that traditional domains lack. This development represents competitive pressure from technically inferior yet financially superior alternatives that resolve liquidity issues by design rather than merely as an afterthought.
Building modern domain infrastructure
Tokenizing domains involves overcoming technical hurdles that other Real World Asset (RWA) categories have successfully tackled. The foundational framework entails converting domains into tradable NFTs that comply with ICANN regulations while facilitating fractional ownership and immediate settlement.
Crosschain liquidity would allow domain trading across Ethereum, Solana, and other networks based on user choice rather than technical constraints. DAOs could collectively own premium domains, with governance tokens representing fractional ownership interests and voting rights regarding development decisions.
The regulatory landscape appears clearer for domains compared to other RWA categories, as domains already exemplify established digital property with well-defined ownership structures acknowledged by ICANN and international law.
Early adopters in domain tokenization will capture considerable advantages through network effects that reward platform dominance. The first registrars to properly implement tokenization will attract premium domains seeking liquidity, which also draws in traders looking for quality inventory.
Market disruption is already happening
The domain industry is beginning to show early signs of competitive pressure from blockchain-native alternatives. Web3 naming systems are experiencing increased adoption despite certain technical limitations because they address liquidity problems that traditional domains overlook.
Investment capital is increasingly directed toward tokenized assets offering fractional ownership and DeFi integration. This shift presents opportunity costs for investors considering premium domains without similar features.
Conventional domain trading platforms may face potential disruption from blockchain-based alternatives that could provide superior user experiences. First-mover advantages in domain tokenization may prove challenging for established players to overcome once market preferences pivot toward more liquid alternatives.
The inevitable transition
Domain tokenization signifies an evolution rather than a revolution. The requisite infrastructure exists, demand is validated through other RWA categories, and the economic incentives clearly favor enhanced liquidity over adherences to outdated practices.
Companies that proactively embrace this transition will establish platform advantages that become increasingly difficult to replicate as the market evolves. Those that resist will find themselves competing with increasingly obsolete value propositions.
Without change, domains risk becoming the only major asset class still ensnared in Web2 trading mechanisms. The first registrars to successfully implement tokenization will dominate the upcoming era of digital ownership by offering the liquidity premium that domain owners have sought for years.
The domain industry was foundational to the internet’s addressing system. Now, it must align with the ongoing evolution of the internet’s financial landscape before it finds itself completely left behind.
Opinion by: Fred Hsu, co-founder and CEO at D3.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
