The decentralized identity trust dilemma: Can on-chain reputation become the "gold standard"?

Original Title: The importance of On-chain reputation

Author: FRANCESCO

Compiled by: Deep Tide TechFlow

In recent years, discussions about on-chain reputation have become increasingly prominent. Since 2017, several projects have attempted to tackle this challenge, aiming to empower on-chain users by providing a reputation layer to understand who they are dealing with. Today, this seems more important than ever, as various SocialFi projects and celebrities frequently launch so-called shitcoins. This article introduces the concept and importance of on-chain reputation, highlighting projects such as Debank and Ethos Network that are researching this field.

On-chain Reputation

On-chain reputation answers a simple question: How do we assess the credibility of people we interact with in decentralized systems?

In centralized systems, third parties typically ensure this reputation (e.g., credit scores, Interpol red notices, bank accounts).

Is there a way to replicate this reputation assurance in distributed systems?

These efforts are not limited to a single protocol but are innovating across the space. To be applicable, such a reputation system must transcend individual protocols and create a unique set of standards that can be recognized on both Web2 and Web3 platforms, establishing a universal framework for cross-chain reputation.

Any attempt that does not become the new standard will render this process meaningless.

According to a16z, "To popularize decentralized identity, we must first establish systems that map people's relevant off-chain experiences and associations to on-chain," then "we must build mechanisms to standardize, process, and prioritize the data streams that will be added to the chain," and "address the inherent challenges of decentralized identity, including the lack of context in on-chain records and the issues of obtaining decentralized networks."

Currently, even block explorers only record very basic inputs. Without additional context for transactions, it becomes more challenging to map and assign reputation scores.

For example, receiving an NFT as part of an exchange should carry different weight than receiving an NFT for outstanding community contributions to a project.

Moreover, in the crypto space, reputation takes many forms, such as protocol trust, lending credit scores, and the track records of project founders.

Only after considering all these factors can the system be applicable to many use cases, incorporating on-chain reputation factors into the "offline activities" of decentralized identity's public query nature.

Three Steps:

1. Record data on-chain

2. Map and interpret the data

3. Convert to "reputation scores"

Truly Standardized Reputation

In their Request for Builders, the Base team outlines how they view on-chain reputation as foundational to success. They liken "on-chain" to the next "online," where reputation in each on-chain account plays a crucial role.

In this context, "reputation protocols" can create more trust on-chain. They hypothesize that this could be similar to FICO (the most well-known credit score name) or Google Page Rank scores.

Wallets can implement these standards as anti-fraud mechanisms, alerting users to risky addresses. We have already seen Rabby take the lead in introducing warnings about new contracts or scam tokens.

Others that have introduced some reputation measures include blockchain analytics companies based on on-chain behavior, such as Chainalysis and DeBank, which created DeBank credit scores.

Credit scores are a "comprehensive measure of user authenticity, activity, and value." Higher scores indicate more activity and user authenticity, but in the current state, DeBank credit scores cannot serve as proxies for reputation.

Additionally, we can see that the importance of formal identity verification is receiving significant attention, which remains a controversial topic in the crypto space.

A successful example of a reputation mechanism is Gitcoin Passport. Gitcoin Passport describes itself as an "identity verification aggregation application."

Like a regular passport, users can collect stamps by verifying past activities or completing tasks and verifications from various Web2 and Web3 verifiers:

• Holonym (KYC)

• Civic (biometrics)

• Google and LinkedIn (Web2)

• Guild and Snapshot (Web3)

These stamps increase the default human score, which serves as a proxy for each user's credibility. A higher human score provides more opportunities, with a minimum of 20 points required to be considered human.

Here are examples of stamps that can be collected:

The greatness of Passport lies in its preservation of user privacy, using zero-knowledge methods to "create a verifiable credential that proves the user has performed specific activities without collecting any personal identifiable information."

Another interesting attempt to create "verifiable verification proofs" is being conducted by Ethos Network.

Ethos is developing a "credibility platform," integrated into a broader ecosystem rather than limited to a single dApp. The platform can be integrated into existing interfaces (Chrome extensions, Metamask snaps) and dApps.

This new social consensus blueprint resembles proof of stake, where users act as "social verifiers."

• Users can stake on people, indicating their trust in them

• Malicious actors can be slashed

• Social consensus providers can earn rewards

Ethos introduces financial rewards and penalties to ensure:

• Reputation is protected by financial security, making forged reputations costly

• Reputation has value

• Social interactions are easier to observe

At the same time, a balance must be found where reputation cannot simply be purchased.

On Ethos Network, users will be able to:

• Review: Develop reputations that go beyond providing financial staking

• Guarantee: Similar to staking, users can put their ETH on others and earn staking ETH rewards. The person you guarantee will receive 10% of the rewards to incentivize verifiers and referrers.

• Slash: If a verifier misbehaves, those who guaranteed ETH for them can propose slashing, removing up to 10% of the violator's staked ETH from the Ethos contract. Those who propose rejected slashing will be penalized.

• Prove: Reflect authority, reputation, and influence from other sources

All these mechanisms will be converted into a single credibility score.

While less attention is paid to on-chain reputation, other notable nominations in the field include:

• Worldcoin: This venture capital-backed giant promises to scan your iris and airdrop some WLD tokens for the inconvenience.

Their intentions may be noble or utopian, which is debatable. Nevertheless, they achieve proof of humanity through biometric scans of users' irises. While this opens new avenues of risk, it is an exciting experiment.

• ENS: Converts crypto addresses into human-readable names, facilitating "on-chain messaging."

The Long and Winding Road

Developing a truly standardized and universal on-chain reputation system will be a long and dark road, encountering many challenges.

• Centralized Solutions: The main challenge is ensuring that all these systems are genuinely decentralized and not controlled by centralized entities, such as Worldcoin or Gitcoin Passport.

• How do we achieve on-chain reputation in a decentralized manner? Anything below this standard will strip the entire system of its trustless element.

• Crypto reputation may be manipulated/purchased

• Privacy must be protected

• Must transcend single wallet attachments and have universal applicability

This implementation will require a collective effort from all participants, wallets, block explorers, dApps, and networks.

Vision with Practical Use Cases

What is the ultimate vision for on-chain reputation?

Here are some examples and practical situations where on-chain identity may be helpful:

• Open CVs: Anyone can assess the reputation of other participants by assigning a single reputation score to each user. Additionally, every article, contribution, or community engagement will be recorded and can serve as proof of reputation.

• Celebrity Token Issuance: As celebrity tokens become a new trend, the data from these issuances can be used to determine the trust profile of each celebrity. We have already seen many of them engage in serial scams. Quick risk assessments can partially address this issue, showing users to be cautious with these tokens.

• Meme Developers: This is a peak time for meme developers. However, many abuse this power for pump-and-dump schemes or outright scams. We have seen some individuals act as serial meme developers, continuously scamming. Identifying the deployers of tokens as previous scammers is very useful for risk assessment for users.

• KOL Dumping: A significant aspect of crypto Twitter is KOLs dumping their bags while selling out their followers. Imagine if you could rank your favorite KOLs by reputation or simply know who the outright dumpers and scammers are.

• Loyalty Programs: Developing an on-chain reputation system will allow dApps to have deeper user interaction information, creating custom programs targeting high-quality interactions and providing high-value rewards for the protocol.

Other Existing Reputation Tools

In addition to those mentioned earlier, various tools have contributed to promoting trust and accountability.

Reputation Building and Tracking

• Collab.Land: A bot that verifies ownership and DAO contributions through NFTs.

• Karma: Visibility of DAO contributions

• PNTHN: Tracking DAO member reputation

• SOURC3: On-chain reputation management platform

Reputation and Verification

• Pentacle: Helps users navigate protocols

• ONT ID: A framework for decentralized identifiers and verifiable credentials

• Krebit: Users can prove their identity without revealing it, protecting privacy

• Orange Protocol: A multi-chain reputation system as verifiable credentials

• OutDID: ZK proofs for private identity verification

Reputation and Governance

• Metopia: A reputation system for governance

• Astraly: An on-chain reputation and reputation-based token distribution platform

• Spect: A no-code tool that helps DAO contributors create sub-DAOs

• SourceCred: Helps incentivize contributors and rewards high-quality participation