ENS Labs has unveiled ENSv2, a significant upgrade to the Ethereum Name Service, which involves a migration to a Layer 2 network. This move aims to enhance scalability and reduce transaction fees by shifting core functionalities from the Ethereum mainnet to a Layer 2 chain.

The proposed ENSv2 upgrade includes a new hierarchical registry system for managing .eth domain names, providing users with enhanced capabilities for managing subdomains and configuring resolvers. This system will be integrated into the Layer 2 network, which will become the new platform for user interactions with ENS.

The migration to Layer 2 is expected to result in lower transaction fees for users, making it more cost-effective for them. The upgrade also has the potential to enhance multi-chain interoperability, broadening the utility and reach of ENS across various blockchain ecosystems.

The decision to migrate to Layer 2 was motivated by the release of Ethereum Improvement Proposal (EIP) 4844, which made Layer 2 networks cheaper through blob transactions. This development has made Layer 2 networks more affordable and scalable, driving the need for ENS's upgrade.

The migration will be phased to minimize disruption, with initial phases focusing on changes to the resolution process to ensure a smooth transition. Users will be able to move their names between the Layer 2 network and the Ethereum mainnet, choosing the optimal balance between cost, security, and functionality.

To support the development and deployment of ENSv2, ENS Labs is seeking additional funding from the ENS DAO. The proposal includes a request for an annual budget increase of 4 million USDC, primarily to cover hiring more developers and infrastructure costs.

Following the announcement, ENS rose over 3% within 2 hours; however, the token was trading 5% lower at the time of writing. ENS Labs has submitted the proposal to the ENS DAO and is currently evaluating Layer 2 networks for the migration.