What is Ethereum Name Service (ENS)?
The Ethereum Name Service (ENS) is a distributed and open-source naming system that maps human-readable names to machine-readable identifiers like cryptocurrency addresses, metadata and content hashes. Although it is built on Ethereum, the lookup system can be deployed on private blockchains and other networks to customize complex strings of data to into readable content. Apart from the native .eth top-level domain, DNS top-level domains such as .luxe, .xyz, and .kred have been integrated into ENS.
What is ENS token?
ENS is an ERC-20 token that offers holders the right to governance participation through the ENS Decentralized Autonomous Organization (DAO). The ENS DAO follows principles set out by its constitution, a set of binding rules that determine what governance actions are legitimate for the DAO to take. By design, there is a maximum supply of 100,000,000 ENS units.
How does ENS compare to Bitcoin?
ENS differs from Bitcoin in a few important ways.
First, Bitcoin is a “coin” and ENS is a “token.” That is because Bitcoin powers the Bitcoin blockchain, and it is mined by a decentralized network of computers that solve complicated math puzzles to verify transactions.
By contrast, ENS is a token that runs on the Ethereum blockchain. On Ethereum, ETH is the only coin that can be staked, and stakers stake ETH to process ENS transactions. It is what is known as an ERC-20 token, the name applied to the generic token standard for the Ethereum blockchain.
Being an ERC-20 token has perks. Blockchains aren’t great at speaking to each other—you can’t get an Ethereum contract to work with a Bitcoin smart contract without some complicated engineering. However, it’s very easy for ERC-20 tokens to speak to one another, which means that ENS can be used in most other decentralized finance applications.
Unlike Bitcoin, ENS is a governance token. While, like Bitcoin, ENS can be used as a means of payment or a store of value, its market price may be very volatile and so it may not be useful for payments or storing value.
Finally, ENS’ market capitalization is smaller than Bitcoin’s. As of May 2023, ENS’ market capitalization was estimated to be $335 million, as compared to Bitcoin’s market capitalization of $560 billion.
Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset. First and foremost:
No Canadian securities regulatory authority has expressed an opinion about ENS, including an opinion that ENS is not itself a security and/or derivative.
Wealthsimple has performed a legal assessment of ENS prior to making it available on Wealthsimple Crypto and has concluded that ENS is not and is unlikely to be deemed a security or derivative. However, there is a risk that this conclusion could change in the future and the impact of this on an asset’s value is outlined in our Product Disclosure.
We evaluated ENS based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of ENS, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created ENS;
- The supply, demand, maturity, utility and liquidity of ENS;
- Material technical risks associated with ENS, including any code defects, security breaches and other threats concerning ENS and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them; and
- Legal and regulatory risks associated with ENS, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of ENS.
Like all other crypto assets, there are some general risks to investing in ENS. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Each of these risks are described in more detail in our in-app Product Disclosure.
ENS also presents an elevated short history risk, and in contrast to networks like Bitcoin and Ethereum, where multiple parties participate in development, the Ethereum Name Service Foundation directs ongoing development of the software underlying the ENS network.
Further, the Ethereum Name Service Foundation, and the ENS community are not under any legal or regulatory obligation to disclose material information to the public regarding their activities. Holders of ENS have no recourse to ENS or Wealthsimple if ENS declines in value for any reason.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading ENS. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
WDA is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Digital Assets Inc. dated June 18, 2021. Please be aware that the statutory rights of action for damages and the right of rescission in the securities legislation of each province and territory of Canada would not apply to a misrepresentation in this Statement.
Last updated: May 3, 2023