ENS business rise dilemma welcomes opportunities: launch V2 upgrade to L2, accelerate expansion of domain name services.

Author: Nancy, PANews

Ethereum co-founder Vitalik Buterin has repeatedly endorsed ENS. On May 21st, he even said, "ENS is the most successful non-financial application in the Ethereum ecosystem, and I don't know why more people aren't paying attention to it." A week later, ENS Labs made a new announcement, proposing the upgrade of ENS v2 and planning to migrate the service from the Ethereum mainnet to Layer2 network, aiming to achieve democratization of domain name services. From the perspective of service upgrade migration and integration of .box domains, ENS, which is facing a growth dilemma, is trying to further open the path to mainstream domain names.

ENS will migrate to the Layer2 network, mainly focusing on the development of Optimism

ENS v2 aims to enhance scalability, drop Gas fees, and improve user experience by moving core functions from the Ethereum mainnet to Layer2 chain. In other words, if the proposal is accepted, users will benefit from the reduction in transaction fees and increased efficiency.

At the same time, the ENS v2 upgrade can also improve cross-chain interoperability. By combining the CCIP-Read gateway with compatible parsers, it can expand the practicality and influence of ENS in different blockchain ecosystems. In addition, ENS v2 proposes a new "layered registration system" to more effectively manage .eth domain names, including the functions of managing subdomains and configuring parsers. This also means that each .eth name will have its own personal registry, giving users more control over the ownership of their names.

Currently, ENS Labs has not yet selected a specific stack or Layer2 network for migration, but the network will become a new platform for users to interact with ENS after the migration is complete. However, according to Khori Whittaker, the former executive director of ENS, ENS is focusing on researching methods to build its protocol on the Ethereum Layer2 network, and may even consider launching its own internal Layer2. They have made progress in the research and development of Layer2 applications, and substantial results in this area are expected to be seen this year, mainly focusing on the development of Optimism.

ENS V1 and V2 comparison, the picture is from TechFlow

For the reasons behind the ENS v2 upgrade, ENS Labs explained that due to the limitations of the Ethereum Mainnet, ENS is restricted in terms of new use cases, application integration, etc. In order to achieve greater decentralization, ENS is now reconstructing the entire architecture based on the original foundation. The release of Ethereum Improvement Proposal (EIP) 4844 is an important factor driving the upgrade of ENS, as it significantly reduces the cost of Layer2 networks through blob transactions.

User and revenue growth slows down, establish cooperation to expand domain business

Every time Vitalik "advocates", the price of ENS rises. But in reality, ENS is facing a dilemma of user and revenue growth.

According to Dune data, the number of ENS domain names created has exceeded 2.072 million, with a total of 886,000 independent participating addresses and nearly 847,000 main domain name registrations. Among them, approximately 175,000 ENS domain names have been created since 2024, accounting for 41.7% in the past year; the number of new addresses exceeds 154,000, accounting for 45.4% in nearly a year. However, according to the Ethereum browser, the number of independent addresses on Ethereum has exceeded 270 million, while the number of ENS domain names is less than 1% of the former.

However, the rise of ENS users is slowing down. Dune data shows that the daily increase in ENS users has dropped from a high of 687 in April 2023 to 0.5 today.

At the same time, ENS's income has also shown a significant rise. According to DeFiLlama data, ENS's income exceeded $9.85 million in 2023, a far cry from the $50 million in 2022. As of May 29, ENS's revenue for this year is approximately $3.431 million, an increase of 33.7% from the beginning of the year. According to Token Terminal data, as of May 29, the monthly active user count of ENS has decreased by 30.7%, and the daily active count has dropped by over 88.9%.

In order to improve its own predicament, in addition to upgrading its services, ENS has also expanded its domain name services through multiple collaborations. For example, in February of this year, ENS announced a partnership with domain registrar GoDaddy to help Web3 community users link ".eth" domain names with traditional Web2 domain names (.com, .xyz, etc.) for free; In April, ENS announced a collaboration with Intercap to introduce .box domain names into the ENS management application, marking the first integration of ICANN-approved top-level domains (TLD) into a dynamic platform. Users can now register .box domain names through the ENS management application and use them for Web2 services such as email and website hosting. It is reported that the uniqueness of .box domain names lies in their on-chain operation, integrating the existing functions of DNS and the decentralized concept of ENS. This means that .box domain names can not only serve as network addresses and email hosts, but also as individuals' cross-platform Web3 identities.

Now, with the launch of ENS V2, it may attract more attention to what Vitalik sees as the "most successful non-financial application".