An Ethereum domain name is used as loan collateral for the first time

Ethereum-based domain names are incredibly valuable to the right user, and that reality is now being reflected in a new way. Rocket LP DAO issued a $1,000 loan this week, collateralized only by the Ethereum Name Service address “brantly.eth.”

The domain name was registered to ENS director of operations Brantly Millegan, who was also the recipient of the loan. He described the transaction as "revolutionary" to Decrypt.

The DAO-governed Rocket was founded in January to provide loans backed with non-fungible tokens (NFTs) as collateral. NFTs are tokens created using the ERC721 standard and are used to represent unique physical or digital assets while retaining the advantages of existing in a digital state like ease of transfer and cryptographic security. NFTs are ideal for tokenizing ownership of scarce assets such as rare art, crypto kitties, and of course unique ENS addresses.

How the loan works

The loans function like a reverse mortgage, in which loan-seekers access the liquidity of the value of their home by offering that unique, non-financial asset as collateral.

Rocket issued a 90-day loan worth 6.5 wETH (around $1,000) to Millegan on Tuesday. At the end of the loan period, he must pay it back, plus 15% interest rate. In return, Rocket has authority over the domain name for 90 days, while Millegan continues to be able to use it. If he defaults, Rocket retains ownership of the domain name and has the right to kick him off.

Given that one could buy a variety of top-level-domain based names, including brantly.me, for as little as $5, Millegan could make out like a bandit if he defaults. However, beyond domain names’ sentimental and cultural value, ENS names are especially precious because they adhere to the ERC721 NFT standard. That allows them to be integrated with Ethereum-based wallet interfaces, smart contracts, and other infrastructure on the blockchain.

In his Medium post, Millegan described how he is incentivized to pay off the loan and retain his collateral because the ENS name is also his own first name, especially because ENS first names are short and can only have one owner per name.

The revolution will be collateralized

He also believes the first-of-its-kind loan is a great example of how ENS fits into the growing NFT ecosystem. “It shows that ENS names are more than just names, they can also fit into the wider world of NFTs and everything being done with them, in this case being collateral for a loan,” he told Decrypt. “I think this is one of the most revolutionary things that blockchain tech can bring to naming, namely programmability and the ability to interact with other smart-contracts on Ethereum.”

As more users join the Ethereum ecosystem and developers strive to streamline and simplify their user experiences, loans based on NFTs are likely to grow in popularity as debtors seek to increase their liquidity and issuers are drawn to loans with collateral that is as much emotional as it is financial.