Unleashing the Future of the Internet with DomainFi

By Fred Hsu (CEO & Co-Founder, D3)

For the last few decades, domains have been more than just website addresses to me; they are the keys to the internet, gateways to online opportunities, and holders of immense potential value. As an individual investor in domains, I’ve always viewed them as the “OG NFT” – even before Web3 and crypto.

My journey in the domain industry began in the 90s, during the early days of the internet. As the Co-Founder and CTO of Oversee.net, I helped pioneer many domain-related services, including aftermarket brokerage, web hosting, and ad placement. Later, I founded and led multiple successful ventures, including Manage.com, a mobile ad tech platform acquired by Criteo, and Ember Entertainment, a AAA-game studio that was acquired by Gala Games.

With over two decades of experience in the internet industry, I’ve had the privilege of witnessing—and shaping—the growth of the internet. I’ve seen firsthand how valuable domains can be, not only as web addresses but as real-world assets with immense untapped potential. This experience has led me to my current role as CEO and Co-Founder of D3, where we are leading the charge in transforming the domain industry through Web3 technologies.

With the current internet domain industry estimated to be worth around $340 billion and its potential to exceed $2 trillion in the coming years, the time is ripe for a transformation that can unleash its full power. And I firmly believe that Web3 will be the main catalyst for this evolution.

Web3 is poised to do to the internet what the internet did to businesses, and nowhere is this clearer than in the world of domain ownership and management.

Combining the traditional domain industry with Web3, or “DomainFi” as I like to call it, democratizes domain ownership and unlocks liquidity and innovation via a decentralized network.

However, before I go into the details, let me explain why Web3 can change the internet forever.

The Potential Impact of Web3

We are living through an unprecedented wave of creation and innovation across the internet. Developers, entrepreneurs, and everyday users have collectively nurtured a digital ecosystem brimming with creativity and potential. Yet, most of this network growth has been funneled into centralized silos owned by tech giants, creating an industry built on permissions, acting like centralized gatekeepers.

The result? A digital landscape where entrepreneurs are forced to build on shaky ground, at the mercy of powerful intermediaries who can change the rules or shut down access on a whim.

This is the landscape we’re facing today. However, the rise of Web3 technologies can act as a catalyst for change – by integrating the internet that we know with true individual ownership. Imagine truly owning every single thing that you create and put out on social media platforms.

Modernizing The Domain Industry With Web3

Domains are a case study of the disruptive potential of Web3 and network design – the architecture governing how nodes (such as domains, websites, or users) connect and interact. Small initial design choices can cascade into significant consequences for how rights, money, and control are distributed across the network.

Today, the domain industry operates within a system that is both centralized and limited. The industry is deeply rooted in decades-old processes and is experiencing multiple pain points:

Lack of Ownership: Domain registration and ownership are largely controlled by centralized registrars and governing bodies. Domain name holders aka “domainers” pay fees to maintain ownership, adhere to specific usage rules, and often face restrictions on transfers or sales.

• High Fees: Brokers charge high commissions (often 20-30%) on transactions, significantly reducing the profitability and liquidity of domain ownership.
• Slow, Inefficient Processes: The process of buying, selling, and transferring domains is unpredictable and often involves lengthy escrow processes and manual compliance requirements that can take weeks or even months.
• Data Fragmentation: Valuation discrepancies, data silos, and the lack of standardized verification create confusion and mistrust in today’s domain marketplace.

Web3 introduces economic benefits that are impossible in today’s domain industry model. Decentralized name systems enable lower fees for transactions and renewals, as they can cut out the centralized gatekeepers and their exorbitant markups. Transactions happen on-chain, facilitated by smart contracts, meaning the process is secure, transparent, and, most importantly, automated.

However, this is the tip of the iceberg.

Domains, when represented as NFTs on a blockchain, can become composable, real-world assets. A domain NFT can have customizable rules for transfer, leasing, and monetization embedded into its smart contract.

The domain’s underlying functionality can evolve, becoming not just an identifier for a website but a gateway for broader Web3 functionalities like decentralized identity (DID), decentralized finance (DeFi), or access control to decentralized applications (dApps).

This is where we can see the real power of Web3.

Think about this. You want to take out a loan. So, you use a DeFi protocol to put up your domain name as collateral.

Imagine that! The fact that you can use your domain as a financial asset is what truly blows my mind.

Another powerful trait is frictionless domain markets.

Currently, buying a domain, especially one that’s already registered, can be a complex, risky, and often costly process. Traditional domain marketplaces involve negotiating with third parties, handling escrow services, and dealing with delays in ownership transfer.

With blockchain-based domains, the process is streamlined. Smart contracts enable instant, trustless transfers, and all ownership records are transparent and publicly available on-chain. This trustless, peer-to-peer system opens up markets in a way that we have never seen before.

The Current Web3 Solutions For Domains Are Good….Right?

Ok, so far, we have established that Web3 and domains are a match made in heaven. We have also seen various implementations, such as community-led projects like Ethereum Name Service (ENS) or 3rd-party vendors like Unstoppable Domains. However, these Web3 name services have their own challenges:

• Incompatibility: The “Web3 domains” on these services are not interoperable with Web2 systems, making them difficult to use across the broader internet. “Web3 domain names” don’t automatically work in web browsers or email clients.
• Security Risks: They are prone to scams, fake assets, and security breaches, undermining their trustworthiness.
• Fragmentation of Ecosystem: The lack of unified standards and the fragmented nature of the Web3 ecosystem have stymied mass adoption and innovation.

We will discuss the incompatibility issue later, but let’s start with the fragmentation issue. This isn’t limited to domains but is a problem with Web3, in general.

This fragmentation has resulted in a divided Web3 landscape that complicates interoperability and adoption, with many resources diverted to building separate blockchain platforms rather than focusing on cumulative innovation atop established networks.

The internet, in contrast, benefited from standardizing on infrastructure like the Domain Name System (DNS) and governance by ICANN, which spurred decades of innovation and predictable growth and utility, without competing base layers. Current investment in multiple blockchain projects is driven by potential high returns and the belief in building superior networks but often with competing tradeoffs. This has often led to redundant duplicated efforts and the present state of clunky asset transfers and a lack of cross-chain interoperability between Web3 ecosystems, not to mention the traditional internet.

The Solution: DomainFi

Borderless Summit “DomainFi for All” panel feat. Fred Hsu (D3 CEO & Co-Founder)

DomainFi is positioned to solve these pain points by modernizing, monetizing, and innovating the domain industry. This involves tokenizing existing and future domains and transforming them into composable digital assets that are liquid, secure, and scalable.

In my opinion, these are three foundational pillars of DomainFi:

1. Modernization: Authoritative tokenization of existing and future domains turns them into trusted, verified digital assets. This modernization step lays the foundation for fast, secure, low-cost liquidity, breaking down the barriers of slow transactions and high fees.
2. Monetization: DomainFi opens up opportunities for buying, selling, and trading domains as real-world assets (RWAs). Domains can be used as collateral for lending or even be involved in derivative products, further expanding financial utility and liquidity.
3. Innovation: Building an ecosystem of scalable tools and developer platforms to innovate on top of tokenized domains, creating opportunities for more utility through new applications, marketplaces, integrations, and services.

How DomainFi Differs from Existing Web3 Solutions

While several Web3 projects have attempted to redefine domains, DomainFi stands out for its focus on:

• Interoperability with Web2 and Web3: Rather than creating isolated digital assets, DomainFi seeks to bridge the gap, making domains compatible with the existing internet infrastructure. As an example, Fred.ape should work not only as my Web3 wallet identifier but also as a domain name that I can host a website at.
• Security and Trust: By building compliance mechanisms and validation protocols, DomainFi ensures that tokenized domains are trusted, secure, and verifiable, unlike many decentralized domain alternatives.
• Innovative Use Cases and Partnerships: With partnerships and access to over 15 major Web3 ecosystems and hundreds of TLDs, DomainFi is poised to bring tangible use cases to accelerate the adoption of tokenized domains.

Interoperability Between Web2 and Web3

DomainFi operates with a focus on ensuring interoperability between Web2 and Web3. Leveraging the established DNS, DomainFi’s infrastructure serves as the backbone for this transformation by providing:

• Authoritative Tokenization: Establishes real domains as verifiable digital assets with compliance and validation processes at the registry level.
• Fast, Low-Cost Transactions: Ensures efficient liquidity for domain transfers, trades, and other financial activities.
• Developer Ecosystem & Tools: Aims to build scalable developer tools and platforms for creating additional layers of value and liquidity on top of tokenized domains.

Liquidity & Domain Ownership in Web3

I think all domainers can attest to this – domains can get pretty illiquid! It could be difficult to sell and trade in an efficient manner unless you have deep personal relationships with key players in the marketplace.

By tokenizing domains through DomainFi, domains become more like other financial assets that can be quickly transferred, traded, and even used in financial markets. Tokenized domains can be fractionalized, staked, or bundled into different financial products, enhancing the financial utility and accessibility of domain ownership.

Closing Thoughts

The internet has undergone massive changes, yet the domain industry has remained largely untouched by innovation. With DomainFi, we can take a bold step forward in transforming domain ownership, enabling a future where domains are not just static assets but verifiable, liquid digital assets that unlock new financial opportunities.

What excites me most about the potential impact of Web3 on domains is how it can empower the next generation of builders, communities, and entrepreneurs.

With DomainFi, users in the domain industry no longer need permission from centralized authorities to own, manage, or monetize their digital assets. Instead, they’ll have modern tools to create, control, and capitalize on their domain assets in an open, permissionless, and decentralized way without compromising on the trust of the Internet they’ve come to expect.

I believe that DomainFi has the potential to shape the future landscape of domain ownership and digital identity for years to come. At D3, we’re building a number of products and programs to accelerate DomainFi and we’re working closely with developers and partners across Web2 and Web3 to accelerate this vision.

Let’s build the future of the internet together!

FAQs

What is DomainFi?
DomainFi is a network designed to transform domain ownership through tokenization of current and future domain names, enabling fast, secure, and low-cost transactions while unlocking new financial opportunities.

How does DomainFi differ from traditional domain systems?
Traditional domains involve decades-old infrastructure and processes that are slow, expensive, and opaque. DomainFi aims to tokenize existing and future domains, making them verifiable, liquid, and easily transferable in a decentralized system as real-world assets.

Can I use DomainFi domains with Web2 applications?
Yes, because DomainFi is built on the DNS, the root layer of the internet, it is designed to be interoperable with Web2 systems while leveraging Web3’s benefits. This means that tokenized domains can be automatically used across the broader internet without compatibility issues such as web browsers, email, and other traditional internet use cases we’re accustomed to.

What are the financial opportunities within DomainFi?
Tokenized domains can be bought, sold, traded, and even used as collateral for lending. This creates more liquidity for domain owners to monetize their assets beyond simple ownership.