Domains as Wallet Addresses—Regulatory Gray Zones

The convergence of blockchain technology and the domain name system has given rise to a transformative yet legally ambiguous innovation: the use of domain names as cryptocurrency wallet addresses. This practice, popularized by platforms like Ethereum Name Service (ENS), Unstoppable Domains, and Handshake, allows users to send and receive crypto assets using human-readable names like alice.eth or payme.crypto instead of traditional hexadecimal wallet strings. While this fusion of readability and decentralization enhances usability and lowers entry barriers for non-technical users, it also introduces a dense set of regulatory uncertainties. The fusion of domain semantics with financial functions has created a hybrid object that does not neatly fall into existing legal categories—posing challenges for policymakers, regulators, and stakeholders in both the internet governance and financial compliance sectors.

At its core, the appeal of using domains as wallet addresses lies in user experience. Traditional crypto addresses are long, unintuitive alphanumeric strings that are prone to error during manual entry. Mistyping a single character can result in irreversible loss of funds. Blockchain-native domain systems, by contrast, allow a user to map a domain—usually a short, memorable name—to one or more public wallet addresses across various chains. This abstraction improves accessibility, mirrors email and web conventions, and facilitates mass adoption. The domains often support multiple purposes: resolving to content on the decentralized web, verifying social identities, or serving as NFT collectibles. But when these domains become conduits for financial transactions, their regulatory status enters murky territory.

Unlike traditional domain names managed through ICANN-accredited registrars, many blockchain domain systems are entirely decentralized. Ethereum Name Service operates through smart contracts on the Ethereum blockchain, meaning no central authority can unilaterally revoke or censor a name. Unstoppable Domains offers similar functionality through NFT-based ownership, allowing users to permanently own a domain without renewal fees. Handshake, meanwhile, proposes a decentralized root zone alternative, challenging the very foundation of how the DNS hierarchy is managed globally. This decentralization makes enforcement of any policy—whether technical, legal, or commercial—extremely difficult, as there is no single entity to subpoena or regulate.

From a regulatory perspective, the first and most obvious concern is anti-money laundering (AML) and Know Your Customer (KYC) compliance. When domains function as wallet aliases, they effectively become part of the financial routing layer. Yet, unlike traditional payment intermediaries, there are no standardized identity verification processes in place for registering or resolving these domains. This creates an attractive tool for obfuscating ownership and routing illicit funds. A malicious actor can use a vanity name—such as donateforrelief.eth—to solicit cryptocurrency under the guise of a charitable cause, with no obligation to disclose their real-world identity or face any intermediary scrutiny. The immutability of blockchain records ensures the funds can be rapidly routed, mixed, or converted beyond traceability, all under the protective veil of a seemingly legitimate name.

Enforcement agencies have taken notice. In 2022, the U.S. Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash, a cryptocurrency mixing service often used to launder stolen assets, including those obtained through nation-state-sponsored hacks. In response, blockchain analytics firms began tracking not only wallet addresses but also ENS domain aliases associated with sanctioned entities. However, the decentralized nature of ENS meant that domains already registered to sanctioned addresses could not be retroactively removed. Domain aliases could still resolve to the same addresses, essentially nullifying the blacklisting unless the broader ecosystem voluntarily agreed to enforce it at the application level—a patchwork approach that depends on wallet providers, DApps, and exchanges acting in concert.

The second major issue is consumer protection. Traditional domain disputes—such as those governed by UDRP or URS—have clearly defined mechanisms for resolving conflicts over trademarks, impersonation, or abusive registrations. But in blockchain domain systems, there is often no appeals process or dispute resolution framework. If a bad actor registers a domain like paypal.eth or coinbase.crypto and uses it to impersonate a trusted service, victims have little recourse. The domain is not subject to centralized takedown, and even if flagged in some interfaces, it remains functional on the blockchain. These risks are compounded by the irreversibility of crypto transactions and the public’s growing familiarity with using named addresses to transact. Unlike web-based fraud, which can be contained or reversed by platform operators, wallet-based fraud is permanent and devastating.

A third complexity arises from questions of jurisdiction and classification. Should these domains be treated as digital assets, intellectual property, or financial instruments? Depending on their use case, they can resemble all three. As NFTs, they are frequently bought, sold, and speculated upon, sometimes fetching prices in the tens of thousands of dollars. As identifiers, they function like trademarks or brands. And as routing mechanisms for financial transactions, they operate much like virtual IBANs or email-to-pay mappings in the fiat world. Yet none of the current legal frameworks—whether DNS policy under ICANN, securities regulation under the SEC, or payment oversight under FinCEN—fully capture the hybrid nature of these domains. Their indeterminacy creates significant legal blind spots.

Complicating matters further is the lack of coordination between internet governance bodies and financial regulators. ICANN, which has historically avoided involvement in content or financial issues, has no formal role in decentralized domain systems. Meanwhile, financial regulators often lack the technical understanding to evaluate the implications of blockchain-based identity systems or name resolution protocols. The result is a regulatory vacuum where innovation outpaces oversight. Some governments, notably in Europe and Asia, have begun to explore frameworks for digital identity that might intersect with these domains, but comprehensive rules remain elusive.

The private sector is responding in piecemeal fashion. Some crypto exchanges and wallet providers now filter out high-risk domains or flag them with warnings. Others are building “safe lists” of verified domain aliases that map to known entities. But these efforts are inconsistent, opaque, and largely unregulated. Domain marketplaces selling blockchain domains rarely conduct KYC, and secondary sales through NFT platforms further obscure provenance and accountability. Without shared standards, the risk grows that fraud, money laundering, and domain squatting will proliferate unchecked, undermining trust in the entire model.

To navigate this evolving space, a multi-stakeholder approach is urgently needed. Technologists, legal experts, regulators, and civil society must collaborate to define baseline norms for registration, dispute resolution, and abuse prevention. Possible models include establishing trusted registrar-like entities that offer verified domains, creating opt-in compliance layers for domains used in financial transactions, or developing open protocols for identity verification tied to domain ownership. Any such system must preserve the decentralization that makes these domains powerful while introducing mechanisms to address the harms that unchecked anonymity and permanence can enable.

The use of domains as wallet addresses is a breakthrough innovation that simplifies crypto adoption and unlocks new forms of digital identity. But it also represents a collision of infrastructures—DNS, blockchain, and finance—each with its own norms, risks, and governance voids. Until these are reconciled, domains as wallet addresses will continue to operate in a regulatory gray zone, offering both promise and peril in equal measure.

The convergence of blockchain technology and the domain name system has given rise to a transformative yet legally ambiguous innovation: the use of domain names as cryptocurrency wallet addresses. This practice, popularized by platforms like Ethereum Name Service (ENS), Unstoppable Domains, and Handshake, allows users to send and receive crypto assets using human-readable names like…