Why Non-Transferable Reputation Creates Real Economic Stakes

Sybil farming has become a professionalized industry, with ~$100M+ spent on infrastructure to claim airdrops from protocols like Arbitrum and Starknet. This drains value from real users and forces protocols into inefficient retroactive distribution models.

• Key Problem: Real user acquisition costs are inflated by 10-30% to account for Sybil leakage.
• Key Insight: Transferable tokens reward capital, not contribution. Non-transferable reputation makes farming unprofitable.

Delegated proof-of-stake and token-weighted voting are inherently Sybil-vulnerable. Whales and veToken systems like Curve's create centralized points of failure, while airdropped governance tokens have near-zero voter participation.

• Key Problem: Voting power is for sale, decoupling decision-making from protocol expertise.
• Key Solution: Reputation-based governance, as pioneered by Optimism's Citizen House, stakes influence on proven, non-transferable contribution.

Systems like Ethereum Attestation Service (EAS) and Gitcoin Passport enable the creation of persistent, non-transferable reputation graphs. This shifts the economic stake from volatile capital to the sunk cost of a verifiable identity.

• Key Benefit: Creates skin-in-the-game for long-term alignment, as reputation is earned, not bought.
• Key Benefit: Enables programmable rights (e.g., access, voting weight) based on proven history, not token balance.

While Worldcoin aims for global biometric proof-of-personhood, it introduces centralization and privacy risks. On-chain reputation is a complementary, granular layer that proves what you did, not just that you are human.

• Key Insight: Combining a weak global Sybil resistance (PoP) with a strong, contextual reputation layer is the endgame.
• Key Application: Enables targeted airdrops, sybil-resistant quadratic funding (like Gitcoin Grants), and legitimate delegated governance.

Non-transferability doesn't mean valueless. The economic value is in the access rights and privileges it unlocks: governance power, fee discounts, early access, and yield boosts. This creates a positive-sum economic sink where users invest time/effort to build reputation, increasing protocol utility.

• Key Mechanism: Reputation decays or must be maintained through ongoing participation, preventing stagnation.
• Key Result: Aligns user lifetime value (LTV) with protocol growth, moving beyond mercenary capital.

The infrastructure war is underway. EAS provides the schema standard. Zero-knowledge proofs (via Noir or zkEVMs) enable private reputation verification. Hyperbolic staking models (research by BlockScience) mathematically formalize the stake-vs-reputation trade-off.

• Key Challenge: Avoiding reputation oligarchies where early users have permanent, disproportionate power.
• Key Trend: Cross-chain reputation portability via EigenLayer or layerzero is the next scalability frontier.

Transferable tokens make governance a financial game, not a competency one. This leads to voter apathy and low-quality delegation. Systems like early Compound or Uniswap suffer from whale dominance and proposal spam.

• Sybil Resistance: Without a cost-of-identity, airdrop farming and governance attacks are trivial.
• Skin-in-the-Game: Token-based voting lacks consequence for bad decisions that don't immediately impact price.

Pioneered by Ethereum's ERC-7231 and projects like Gitcoin Passport, non-transferable credentials create a persistent identity layer. This allows for programmable reputation that can't be bought.

• Context-Specific Stakes: A user's reputation in a lending protocol (e.g., Aave) is separate from their reputation in a DAO (e.g., Optimism Collective).
• Progressive Decentralization: Builders can start with permissioned reputation (e.g., EAS attestations) and gradually open the system.

Treat reputation as a non-seizable, interest-bearing asset. High-reputation users access better rates, higher limits, and permissionless roles. This creates a direct economic feedback loop.

• Underwriting Efficiency: Protocols like Goldfinch manually underwrite; reputation streams could automate this, cutting ~70% of operational cost.
• Loyalty Rewards: Unlike mercenary capital, reputation-based rewards (e.g., fee discounts) incentivize long-term ecosystem contribution.

EigenLayer is the canonical case study: it converts transferable staked ETH into non-transferable operator reputation. Slashing for misbehavior creates real economic stakes for AVS security.

• Capital Efficiency: The same ETH secures both Ethereum and other protocols, creating new yield streams.
• Trust Networks: Operators build reputation scores, allowing service consumers (AVSs) to permissionlessly select high-quality nodes.

Protocols with embedded reputation develop unforgeably costly moats. User loyalty and specialized trust data become key value accrual mechanisms, moving beyond pure TVL.

• Sticky Users: Switching costs are high when privileges are reputation-based, not token-based. See Curve's veToken model as a primitive analog.
• Data Asset: The reputation graph itself is a proprietary asset that can be licensed or used for underwriting (e.g., ARCx's DeFi Passport).

Don't build a full reputation layer from scratch. Integrate existing primitives: Ethereum Attestation Service (EAS) for issuing, World ID for Sybil resistance, and EigenLayer for cryptoeconomic security.

• Iterative Trust: Launch with a whitelisted pod of known entities, then use their attestations to bootstrap a permissionless reputation market.
• Composability: Design reputation to be portable across your product suite (e.g., from governance to lending to insurance).