The tokenization of real-world assets (RWAs) has been one of finance's loudest talking points for the past two years. But Fred Hsu, co-founder and CEO of domain infrastructure company D3, thinks the conversation has been looking in the wrong direction.
"The tokenization conversation keeps circling the same assets – treasuries, funds, private credit," Hsu told Blockhead. "Those already have functioning markets. Putting them onchain changes distribution, but it doesn't change how those markets actually work."
For Hsu, that's the first phase, and it's already played out. "What's happening now is that tokenization is starting to follow the same pattern as previous infrastructure shifts in finance," he said. "It moves first into assets that are easy to adapt, and only later into markets where the infrastructure itself needs to be rebuilt."
That second phase, he argues, is where the real opportunity lies. And one of his clearest examples is an asset class most people don't think of as a financial instrument at all: internet domain names.
A $360 Billion Market Running on Fax-Era Infrastructure
The numbers are striking. There are nearly 390 million registered domains globally, according to Verisign's Domain Name Industry Brief, in a market valued at over $360 billion. And yet it still runs largely on bilateral broker deals, opaque pricing, and settlement that can stretch from days to weeks.
"It's a large, global asset class, but pricing is fragmented, transactions are brokered, and most of the data sits behind closed networks," Hsu said. "There's no consistent price discovery and very little liquidity relative to the size of the market."
By most measures, it looks exactly like the kind of market tokenization was built to fix.
From Private Deals to Liquid Markets
The mechanics are relatively straightforward. A tokenized domain can be listed and traded on a decentralised exchange, eliminating the broker and enabling real-time price discovery. It can be pledged as collateral in a DeFi lending protocol, giving owners access to liquidity without having to sell. And through fractionalization -- splitting the domain NFT into ERC-20 fungible tokens -- high-value domains could be co-owned and co-developed by multiple parties.
"Tokenization is about making domains usable as financial assets, with transparent pricing, faster settlement, and the ability to trade, finance, or collateralize domains," Hsu said. "When that layer is introduced, markets tend to expand. More participants enter, capital moves more freely, and the asset class starts behaving less like a series of private deals and more like a real liquid market."
The Technical Bridge
Tokenizing a Web2 domain -- a conventional .com, .io, or .net -- is meaningfully different from trading native Web3 assets like .eth Ethereum Name Service names. The latter live natively on-chain; the former require an ongoing technical link between the traditional DNS system and a blockchain-based ownership record.
Platforms including 3DNS and Cloudname are building this infrastructure. As CoinMarketCap has noted, tokenized Web2 domains require continuous on-chain verification to maintain the DNS-to-token relationship -- a layer of overhead that creates both an engineering challenge and, if reliably solved, a meaningful moat. On-chain data from platforms like Dune Analytics and OpenSea can already track historical sales and daily activity, providing the kind of market transparency the domain industry has never had.
Still Early
There is no meaningful onchain liquidity in domains yet. Secondary markets remain thin, and the same questions that shadow every early-stage RWA project apply here: will enough asset holders tokenize to make the market self-sustaining, and will institutional capital follow?
Regulatory clarity is another open question. The SEC's ongoing scrutiny of tokenized assets and grey areas left by the EU's MiCA framework mean platforms operating across jurisdictions are still navigating uncertain terrain.
But the structural case is hard to argue with. A $360 billion market, running on broker relationships and manual settlement, with no consistent pricing data is a systemic inefficiency. And if Hsu is right about where tokenization goes next, domains could end up being one of the cleaner examples of what the technology was always supposed to do.
