Why Decentralized Identifiers (DIDs) Are Stuck in Purgatory

DIDs exist in protocol silos. A Spruce ID credential is useless on a Polygon ID app. The W3C spec is a framework, not a runtime. The result is a fragmented identity landscape where user portability is theoretical.

• No Universal Resolver Standard: Competing DID methods (did:ethr, did:key, did:web) lack a canonical resolution layer.
• Verifiable Credential Lock-in: Issuers and verifiers must support the same tech stack, creating walled gardens.
• Missing Layer 0: No equivalent of TCP/IP for identity, unlike ENS which has a single root on Ethereum.

Users won't adopt DIDs without apps; developers won't build apps without users. The cold start problem is catastrophic for identity. The friction of managing keys and gas fees for interactions like Iden3's Proof Generation kills mainstream use.

• Key Management is a Nightmare: Losing a seed phrase means losing your identity forever. MPC wallets like Privy are a band-aid.
• Prohibitively Expensive: Issuing an SBT or a Veramo credential can cost $5-$50 in gas, scaling to zero.
• No Killer dApp: Outside niche DeFi sybil resistance, there's no "must-have" use case driving adoption.

There is no sustainable business model for decentralized identity infrastructure. Ontology and Ethereum Name Service monetize registrations, but core DID components—issuance, revocation, proof verification—are public goods with zero built-in monetization. This stifles R&D and high-availability service provision.

• Verifiers Don't Pay: The entity receiving the proof (e.g., a dApp) bears no cost, disincentivizing robust infrastructure.
• Issuers Subsidize Everything: Credential issuers (e.g., universities) must pay all gas and service fees, a non-starter.
• No Staking/Slashing: Unlike Lido or EigenLayer, there's no cryptoeconomic security model for attestation validity.

DID protocols like SpruceID and Veramo build infrastructure for a market that doesn't exist. Developers won't integrate DIDs without users, and users won't adopt DIDs without useful applications. This creates a barren landscape where the most common use case is logging into a testnet dApp.

• Chicken-and-Egg: No killer app drives mainstream demand.
• Integration Cost: Adding DID auth is a feature, not a product.

The W3C DID standard is a framework, not a specification, leading to incompatible implementations. Your Ceramic-based ID is useless in a Sovrin ecosystem. This fragmentation mirrors early blockchain bridges before standards emerged, forcing developers to choose a walled garden.

• Protocol Silos: Competing standards from ION, Ethereum Attestation Service.
• Verifier Burden: Apps must support multiple DID methods, increasing complexity.

Zero-knowledge proofs for selective disclosure (e.g., zk-creds) are computationally expensive and complex. The alternative—portable, verifiable credentials—often just moves the data on-chain, creating permanent privacy leaks. Most real-world use cases default to centralized OAuth because it's ~500ms faster and legally simpler.

• ZK Overhead: Proving you're over 21 costs more gas than the drink.
• On-Chain Footprint: Verifiable credentials can become immutable personal data leaks.

Identity without a native payment rail is a profile picture. Ethereum Name Service succeeded by becoming a speculative asset and a payment address. Most DIDs lack a clear token model or financial utility, failing to bootstrap the network effects that drive DeFi and NFT adoption.

• No Staking: No way to align incentives or secure the network.
• Abstract Value: Hard to monetize "ownership of self" beyond niche use cases.

Building a global identity system invites scrutiny from GDPR, MiCA, and other regulators. Who is liable for a fraudulent verifiable credential? The issuer, the holder, or the protocol? This uncertainty scares off institutional partners and leaves projects like Ontology navigating legal minefields with no clear precedent.

• Data Controller Role: Unclear under decentralized models.
• KYC/AML: Direct conflict with permissionless, pseudonymous ideals.

The only viable path out of purgatory is piggybacking on an adopted standard. Coinbase's cbETH integration with Verite shows the model: use a widely-held asset as a proxy for identity. Starknet's proof-of-personhood or EAS attestations on Optimism attach identity to an existing web3 activity, avoiding the cold start.

• Leverage Existing Graphs: Social connections from Lens Protocol, on-chain history.
• Minimal Viable Identity: Start with a single, valuable claim, not a full dossier.

The official W3C DID Core specification is a framework, not a product. It offers infinite flexibility but zero default usability, forcing every project to rebuild the wheel.

• No Default Resolver: Every app must choose/run a resolver for each DID method (e.g., did:ethr, did:key).
• Key-Recovery Paradox: Self-custody means users lose keys, lose everything. Social recovery (via Ethereum ENS, Lit Protocol) adds centralization.
• Verifiable Credentials Mismatch: Issuance and verification are complex, siloed processes with no killer app driving adoption.

Storing credentials on-chain is prohibitively expensive; storing them off-chain (e.g., Ceramic, IPFS) recreates availability and incentive problems.

• Cost Reality: A simple VC on Ethereum L1 costs ~$10+. Polygon ID and zkCredentials push for L2 scaling.
• Linkability Risk: Using the same DID across contexts (DeFi, Social) creates a permanent, global correlation vector.
• Garbage Collection: Off-chain data pins expire unless paid for, turning self-sovereign data into a subscription service.

DIDs need valuable credentials to be useful, but credible issuers (states, universities) have no incentive to issue to a niche system with no users.

• Issuer Onboarding: Real-world trust anchors (Spruce ID, Veramo) must bridge to legacy KYC/AML systems.
• Sybil Resistance Gap: Proof-of-Personhood protocols (Worldcoin, BrightID) are the only 'credential' with demand, making them the de facto DID.
• Protocol Silos: Gitcoin Passport, Civic Pass create useful attestation wallets that compete with, rather than compose with, generic DIDs.

Forget the universal DID. Adoption will come from vertical-specific identifiers that solve acute pain points, not abstract sovereignty.

• DeFi Primitive: Ethereum EOAs and Safe Smart Wallets are the dominant DIDs, enriched by on-chain attestations (EAS, Hyperlane).
• Gaming & Social: Disco, Sign In With X use DIDs under the hood but abstract complexity for devs.
• Regulatory Path: Circle's Verite and enterprise Sovrin target compliant finance, accepting trusted issuers as a feature.