The Next Hypecycle: DomainFi
DomainFi combines Identity, Finance, and Decentralized Services into one cohesive sector.
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the next Hypecycle: the case for DomainFi
* Identity, Finance, and Decentralized Services
→ Why DomainFi?
DomainFi could emerge as a breakout sector, particularly as Web3 adoption grows.
Decentralized identity solutions are becoming increasingly important as people look for ways to own and control their digital identities in a decentralized manner.
With blockchain domains offering secure, customizable, and user-controlled solutions for web hosting, financial transactions, and personal identification, this space has the potential for major growth.
→ Potential Market:
The decentralized domain market is already growing.
As more services like wallets, metaverses, and decentralized applications adopt these technologies, the adoption of Web3 domains could be the next big trend.
DomainFi could emerge as a unique vertical that combines identity, finance, and decentralized services into one cohesive sector.
A Brief History on the last 3 Major Hypecycles:
ICOs, NFTs, and Memecoins
→ The ICO Boom (Initial Coin Offerings)
Largely took place in 2017, with its effects beginning in 2016, and extending into early 2018. (cycle lasting 1.5 to 2 years)
Ethereum emerged as the go-to blockchain for ICOs due to its smart contract capabilities. The bulk of all ICO projects were built on Ethereum.
Ethereum saw a massive spike in transaction volumes, as the majority of ICO tokens were ERC-20 tokens.
The overall market cap for Ethereum exploded, rising from $7 billion in early 2017 to over $100 billion by the peak of the ICO boom in 2018.
→ The NFT Craze (Non-Fungible Tokens)
Gained real traction mid-2020, continuing into early 2022, peaking from Q1 2021 to Q2 2022. (cycle lasting ~1.5 years)
Ethereum continued to dominate as the primary chain for NFTs, especially with the ERC-721 and ERC-1155 token standards.
Ethereum surged in transaction volumes, with platforms like OpenSea seeing exponential growth. Monthly trading volume on Ethereum’s NFT market reached over $5 billion at its peak.
The overall NFT market reached a peak of over $40 billion in 2021, with Ethereum-based NFTs representing the lion’s share of that.
→ Memecoin Season (on Solana)
Solana dominated the 2023 memecoin cycle. Solana’s memecoin boom reached its apex the summer of 2023 and continued into the first half of 2024.
Solana emerged as the primary blockchain for memecoins due to its low transaction costs and high throughput.
Solana’s blockchain saw a major surge in transaction volumes, particularly in Q2 and Q3 2023. In some weeks, Solana saw over 5 million transactions per day.
Overall, memecoins pushed Solana’s total market cap higher temporarily, contributing to Solana’s valuation reaching over $50 billion at the peak of the cycle.
DomainFi’s Potential to Drive the next Hypecycle:
→ It’s a natural extension of Web2 domain trading moving into a decentralized, blockchain based economy.
→ It taps into scarcity & speculation (much like NFTs), with high-value domains being treated as digital assets that can be traded off or resold for a profit.
→ It brings ownership and control to users, a key feature of Web3.
→ It has clear, tangible use cases, including decentralized identity, digital branding, and Web3- native websites.
The Big Six Considerations
1. A Well-Understood Concept from Web2:
Web2 Domain Market: The concept of domain buying and selling is already widely understood. People buy domains to resell them at a profit (e.g., the sale of "business.com" for $345 million). The behavior is well-established and already quite speculative in Web2, making it an easy transition to Web3.
Domain Names as Digital Assets: In Web3, domain names aren’t just about access to a website—they represent digital identity (e.g., ENS names or domains on Solana’s Name Service). These assets are stored on the blockchain, giving them inherent value as non-fungible tokens (NFTs) or domain-based NFTs.
2. The Potential for Large Profit Margins:
High-Value Names in Web2: As we’ve seen in Web2, great domain names can command astronomical prices. Imagine names like “AI.com,” “Crypto.eth,” or “Web3.eth” being sold at a premium. If the Web3 market mirrors Web2 in the profitability of premium domains, DomainFi could attract speculators & investors looking to purchase rare and valuable Web3 identities.
Rarity and Scarcity: Just like traditional domains, scarce Web3 domains (e.g., “Crypto.eth,” “NFT.com,” or “Meta.eth”) would be highly valuable because of their limited supply. Many people are already snapping up short ENS or Unstoppable domains as a speculative play. Scarcity drives demand.
3. Bringing Ownership and Control to Users:
True Ownership: The key advantage of blockchain over Web2 is true ownership. With Web3 domains, users don’t rent domains as they do in Web2 (via services like GoDaddy)—they own them outright. This gives individuals full control over their digital identity and assets.
Censorship Resistance: In the Web2 world, domain ownership can be arbitrarily revoked (for example, the seizure of domains by governments or registrars). Web3 domains, however, are more censorship-resistant, as they are decentralized and governed by smart contracts.
4. New Use Cases in the Web3 Ecosystem:
Decentralized Identity: Beyond websites, blockchain-based domains could be used for things like digital identity (similar to how ENS names can be linked to your Ethereum wallet). The ability to own and transfer your identity across Web3 platforms will appeal to users seeking privacy and control over their digital persona.
Domain-as-Utility: Domains could be tied to more than just websites—they could represent wallet addresses, reputation systems, or social profiles. For instance, you could transfer a domain to represent your social media presence or NFT collection, providing a unique and verifiable Web3 identity.
5. Evolving into a Liquid Market:
Domain Markets as NFTs: Web3 domains can be tokenized as NFTs, making them tradable on decentralized exchanges (DEXs) and NFT marketplaces. This creates the opportunity for a more liquid marketplace for domain assets, just as we’ve seen in the NFT boom. For example, trading ENS domains on OpenSea or specialized marketplaces could become as normal as trading rare NFTs.
Fractional Ownership of Domains: There could also be a new trend in fractionalizing high-value domain names, where multiple people pool resources to collectively own high-value domains. This is similar to how fractionalized ownership is becoming a trend in NFT art.
6. Speculation & Hype Potential:
FOMO (Fear of Missing Out): Web3 is notorious for speculative FOMO, and DomainFi could be the next speculative bubble. If major influencers, developers, or celebrities start buying premium Web3 domain names, the hype could drive demand to unsustainable levels, much like the ICO boom or NFT craze.
Branding and Investment: Brands and businesses looking to establish a foothold in the Web3 world might also turn to DomainFi, acquiring Web3 domain names as long-term investments or as part of their digital branding strategy.
The Conclusion
→ In summary, while past hypecycles (ICOs, NFTs, Memecoins) were driven by speculation and short-term excitement, this next cycle could be more sustainable, driven by real technological advancements and decentralized ecosystems.
→ Base stands out as a leading Layer 2 solution that can tap into Ethereum’s vast ecosystem while offering scalability, and DomainFi presents an exciting new frontier in Web3 identity, name services, and decentralized domains.
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And there you have it… the Case for DomainFi 🙌
Enjoy, see you next time!
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