Opinion by: Fred Hsu, co-founder and CEO at D3
A small business owner possesses a premium domain like organic.shop but struggles for months to find a buyer willing to meet their asking price.
Conversely, someone on the other side of the world effortlessly purchased a fraction of a Manhattan apartment via tokenized real estate in less than five minutes.
This stark contrast highlights a significant inconsistency within our digital economy. While the real-world asset (RWA) tokenization market is on a trajectory towards a $400 trillion potential, the domain industry remains ensnared in Web2 illiquidity, despite having 360 million registered domains and a $10 billion premium segment.
If the domain industry does not adopt tokenization, it risks losing billions in value and ceding market dominance to Web3 naming systems like ENS.
While stocks, real estate, and carbon credits embrace blockchain-driven liquidity, domains might end up being the internet’s illiquid dinosaurs.
The tokenization wave domains are missing
Tokenization has fundamentally transformed how valuable assets are traded on a global scale. Tokenized treasuries now amount to over $7 billion, providing immediate liquidity for traditionally sluggish government securities.
Fractional ownership platforms enable small investors to buy stakes in Manhattan skyscrapers or patent portfolios that were once the domain of institutions.
Smart contracts eliminate the need for brokers, escrow services, and the paperwork that typically delays asset transfers. Settlements can occur in minutes instead of weeks, and global markets operate around the clock, rather than being restricted to specific business hours.
The technology to immediately revolutionize domain trading is available. The pertinent question is why an industry centered on digital innovation accepts analog friction.
The antiquated domain economy
The process of selling a domain today resembles that of 1999. On average, domain sales take three to six months to complete, if they actually do. Brokers impose commissions of 15%-30%, compared to less than 1% for tokenized assets.
Geographic and financial barriers artificially restrict the pool of potential buyers. An innovative entrepreneur in Lagos may have a brilliant idea for a premium domain but lacks the access to traditional payment systems or credit options required by domain brokers.
As a result of these challenges, less than 1% of registered domains trade annually. This represents a significant economic inefficiency in a market potentially worth hundreds of billions of dollars.
The situation becomes particularly absurd when you consider that domains are pure digital assets, which should inherently be more liquid than physical real estate or paper securities. Yet, they trade less efficiently than either.
The innovation penalty grows
This liquidity crisis creates a cascade of issues that extend far beyond protracted sales cycles. Premium domains hold immense trapped value, which could be leveraged for innovation if released through modern financial infrastructure.
Startups cannot use domains as collateral for DeFi loans because traditional banking systems do not recognize digital assets. DeFi protocols struggle to verify domain ownership through outdated registrar systems. This financing gap constrains entrepreneurial opportunities around premium digital real estate.
Voice.com was sold for $30 million in 2019, but the transaction took months of negotiation, excluding potentially higher fractional bids from smaller investors who might have collectively valued the asset more than any single buyer.
Related: Early Bitcoin domains head to auction
Web3 naming systems like ENS are gaining traction, partially because they provide native blockchain integration that legacy domains lack. This creates competitive pressure from technically inferior yet financially superior alternatives that solve liquidity issues through design rather than as an afterthought.
Building modern domain infrastructure
Tokenizing domains necessitates addressing technical challenges that other Real World Asset (RWA) categories have already solved. The foundational framework involves transforming domains into tradable NFTs that maintain ICANN compliance while allowing fractional ownership and immediate settlement.
Crosschain liquidity enables domain trading across Ethereum, Solana, and other networks based on user preferences rather than technical constraints. DAOs could collectively own premium domains, with governance tokens representing fractional ownership stakes and voting rights regarding development choices.
The regulatory landscape appears clearer for domains than for other RWA categories, as domains are already recognized as established digital property with well-defined ownership frameworks acknowledged by ICANN and international law.
Early adopters of domain tokenization will reap disproportionate rewards through network effects that promote platform dominance. The first registrars to properly implement tokenization will attract premium domains seeking liquidity, which in turn draws traders in search of high-quality inventory.
Market disruption is already happening
The domain industry exhibits early indications of competitive pressure from blockchain-native alternatives. Web3 naming systems are gaining popularity despite their technical limitations, as they address liquidity challenges that traditional domains overlook.
Investment capital is increasingly directed towards tokenized assets that provide fractional ownership and DeFi integration. This trend presents opportunity costs for investors considering premium domains lacking similar features.
Traditional domain trading platforms may face potential disruption from blockchain-based alternatives that could deliver superior user experiences. The advantages of first-mover advantage in domain tokenization may prove difficult for established players to surpass once market preferences shift towards more liquid alternatives.
The inevitable transition
Domain tokenization signifies evolution rather than revolution. The necessary infrastructure is in place, demand is validated through other RWA categories, and the economic incentives clearly favor heightened liquidity over persistent friction.
Companies that embrace this transition early will establish platform advantages that become challenging to replicate as the market matures. Those resisting change will find themselves competing with increasingly outdated value propositions.
Without modification, domains risk becoming the only major asset class still ensnared in Web2 trading mechanisms. The first registrars to effectively implement tokenization will define the next era of digital ownership by delivering the liquidity premium that domain owners have sought for decades.
The domain industry pioneered the internet’s addressing system. Now, it must adapt to the internet’s financial evolution before it becomes entirely irrelevant.
Opinion by: Fred Hsu, co-founder and CEO at D3.
This article is for general informational purposes only and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect the views and opinions of Cointelegraph.
