The Future of Power: From Capital to Credential

Maximal Extractable Value (MEV) acts as a direct tax on user transactions, siphoning ~$1B+ annually from DeFi users. This creates a hostile environment where capital is systematically disadvantaged by sophisticated bots and validators.

• Capital inefficiency: Users lose value on every swap, liquidation, and bridge.
• Centralizing force: MEV profits consolidate with the largest stakers and block builders.
• User experience tax: Front-running and sandwich attacks degrade trust in on-chain execution.

Instead of submitting vulnerable transactions, users declare desired outcomes (intents). Networks like UniswapX, CowSwap, and Across use off-chain solvers competing to fulfill them, routing based on reputation and credential, not just stake.

• MEV resistance: Solver competition internalizes value for the user.
• Credential-as-moat: Solvers win based on proven execution history and capital efficiency.
• Better execution: Users get price improvements and guaranteed results.

Proof-of-Stake security is gated by the 32 ETH validator minimum, creating a high capital barrier. This leads to centralization risks with Lido, Coinbase, and Binance controlling >50% of Ethereum's stake, creating systemic risk and governance capture.

• Capital gatekeeping: Excludes smaller participants from consensus rewards.
• Trust assumption: Users must delegate to large, opaque entities.
• Protocol risk: Concentrated stake threatens chain liveness and censorship resistance.

EigenLayer and Babylon decouple security from a single chain, allowing ETH or BTC stakers to cryptographically extend their trust (credential) to new networks. Security becomes a reusable service, not a locked asset.

• Capital efficiency: One stake secures multiple protocols.
• Credential portability: Validator reputation becomes a cross-chain asset.
• Lower barriers: Actively Validated Services (AVS) can bootstrap security without a native token.

Addresses are pseudonymous and atomic. This lack of persistent, composable identity forces protocols to reinvent reputation systems, leading to Sybil attacks, poor credit markets, and fragmented user experiences. Capital is again the primary signal.

• No native reputation: Every dApp starts from zero.
• Sybil vulnerability: Airdrop farming and governance attacks are trivial.
• Inefficient markets: Lending relies on over-collateralization due to no credit history.

Protocols like Worldcoin, Ethereum Attestation Service (EAS), and Gitcoin Passport create on-chain credentials for humanity, participation, and skill. These verifiable claims become the new capital for access and trust.

• Sybil resistance: Unique humans get disproportionate governance power.
• Composable reputation: A Gitcoin Passport score unlocks across DeFi and governance.
• Under-collateralized credit: Proven repayment history enables lending based on credential, not just capital.

Any credential system is only as strong as its identity layer. Current solutions like Proof of Humanity or Worldcoin create centralization risks and privacy nightmares. A failure here collapses the entire trust model.

• Attack Surface: Credential forgery or mass issuance.
• Central Point of Failure: Oracle or biometric data breach.
• Exclusion Risk: Creates a new digital underclass.

When voting power is based on non-transferable credentials, early adopters or well-connected cliques can form permanent oligarchies. This is worse than token-based governance because it's not economically dilutable.

• Permanent Power: No market mechanism to redistribute influence.
• Coordination Monopoly: Groups like Gitcoin Passport holders could dominate grants.
• Stagnation Risk: Incumbents veto progressive changes.

Decoupling governance from capital (e.g., veToken models) can cripple protocol treasury and liquidity. If key decisions are made by credential-holders who don't bear direct financial risk, they may vote for policies that drain liquidity or misallocate funds.

• Misaligned Incentives: Decision-makers don't suffer token price consequences.
• TVL Drain: Poor treasury management scares away LPs.
• Real Example: Look at Curve Wars for a preview of non-financial governance wars.

Credential systems that score reputation or grant access based on behavior are a regulatory minefield. The EU's AI Act and global data privacy laws (GDPR) could classify these as prohibited social scoring systems, leading to existential legal risk.

• Global Ban Risk: Outright prohibition of algorithmic reputation.
• Data Liability: Holding personal credential data creates massive compliance overhead.
• Chilling Effect: Developers avoid building critical primitives.

Every major protocol (Ethereum with EAS, Solana, Cosmos) will roll its own credential standard. This creates walled gardens of reputation that don't communicate, defeating the purpose of a portable web3 identity. LayerZero and CCIP can't solve semantic disagreement.

• Siloed Value: Reputation earned on Chain A is useless on Chain B.
• Developer Burden: Must integrate N different credential systems.
• User Confusion: Multiple, conflicting reputational identities.

Privacy-preserving credentials (e.g., zk-proofs of humanity) require constant, expensive proof generation. This creates massive UX friction and centralizes prover infrastructure, creating new bottlenecks akin to today's RPC providers.

• UX Killer: Users won't wait 20 seconds to generate a proof for a vote.
• Cost Prohibitive: ~$0.10 per proof makes micro-interactions impossible.
• Centralization: Reliance on a few Risc0 or Succinct prover services.

Traditional Proof-of-Stake security requires massive, idle capital, creating high barriers for new chains and concentrating power. This leads to ~$100B+ in staked assets sitting idle and centralized validator cartels.

• Key Benefit 1: Unlock billions in capital efficiency by decoupling economic security from raw token holdings.
• Key Benefit 2: Enable permissionless chain launches without a native token or massive VC raise.

EigenLayer transforms staked ETH into a reusable security credential, allowing protocols to bootstrap security via shared cryptoeconomic trust. This creates a marketplace for decentralized trust.

• Key Benefit 1: Protocols like EigenDA, Espresso, and Lagrange can launch with billions in borrowed security.
• Key Benefit 2: Stakers earn additional yield (5-15% APY) by opting into new services, creating a flywheel.

The restaking primitive enables a new stack where security, data availability (DA), and sequencing are services purchased with credentials, not built from scratch. This mirrors AWS for crypto.

• Key Benefit 1: Celestia, Avail, and EigenDA compete on DA cost, driving prices to ~$0.001 per MB.
• Key Benefit 2: Builders compose best-in-class modules (e.g., OP Stack + EigenDA + Espresso) without vendor lock-in.

The highest leverage investment is in the foundational credential layers and the protocols that aggregate them. Value accrues to the base credential (ETH) and the aggregation middleware.

• Key Benefit 1: EigenLayer's "middleware" model captures fees from all services built on top, akin to a trust tollbooth.
• Key Benefit 2: Native restaking tokens (e.g., EigenLayer's future token, Renzo's ezETH) become the new yield-bearing reserve assets.

Reusing security creates interconnected risk. A fault in one Actively Validated Service (AVS) can trigger slashing across the ecosystem, potentially causing cascading failures and billions in value at risk.

• Key Benefit 1: Drives innovation in risk assessment markets and slashing insurance (e.g., Coverage, UMA).
• Key Benefit 2: Forces rigorous cryptoeconomic audits, raising the security bar for all AVSs.

The final stage is a world where any asset or identity can be used as a credential for trust, enabling permissionless innovation at the speed of software. This moves beyond ETH to include Bitcoin, real-world assets, and reputation scores.

• Key Benefit 1: Babylon brings Bitcoin security to PoS chains, unlocking $1T+ in dormant capital.
• Key Benefit 2: Enables hyper-specialized chains for gaming, DeFi, or AI with custom trust models.