DIDs are infrastructure, not UI. They are the base protocol layer for verifiable credentials and on-chain reputation, akin to how TCP/IP underpins the internet. User-facing 'profiles' from Lens Protocol or ENS are applications built atop this core standard.
the-creator-economy-web2-vs-web3
Blog
Why DIDs Are the Foundation, Not the Feature
Decentralized Identifiers are the root of trust for all composable Web3 systems, from SocialFi to DAOs, enabling true interoperability. This analysis explains why they are the essential substrate, not an optional add-on.
introduction
THE IDENTITY LAYER
Introduction
Decentralized Identifiers (DIDs) are the foundational protocol for user sovereignty, not a user-facing feature.
The current web3 stack is incomplete. Without a native identity layer, applications must rebuild user context for every session, leading to fragmented data and poor UX. This forces reliance on centralized custodians like Coinbase for onboarding and verification.
Sovereignty requires cryptographic proof. A DID, as defined by the W3C standard, gives users a cryptographically verifiable self-owned identifier. This enables portable reputation across dApps, moving beyond the siloed 'wallet-as-identity' model that plagues DeFi and social protocols today.
Evidence: The Ethereum Foundation's Sign-In with Ethereum (EIP-4361) and projects like SpruceID demonstrate the shift towards using DIDs for authentication, replacing OAuth and proving the demand for this foundational primitive.
thesis-statement
THE FOUNDATION
The Core Argument: DIDs as the Root of Trust
Decentralized Identifiers are the atomic unit of user-state, not a modular add-on.
DIDs are the root state. Every on-chain interaction—from a Uniswap swap to an ENS registration—is a state transition for a user. Without a persistent, self-sovereign identity, this state fragments across wallets and chains, forcing protocols like Safe and Privy to build complex, custodial workarounds.
Current wallets are stateless. An EOA or MPC wallet is a keypair, not an identity. This forces applications to manage user data, creating siloed profiles that cannot interoperate, unlike a DID which provides a universal namespace for credentials and reputation.
The DID standard (W3C) enables composability. Just as ERC-20 created a fungible token standard, DIDs create a standard for non-fungible user identity. This allows protocols like Gitcoin Passport or Worldcoin to issue verifiable credentials to a single, user-controlled entity.
Evidence: The Ethereum Foundation's Sign-In with Ethereum (EIP-4361) formalizes this, treating the Ethereum address as a DID. This is the prerequisite for portable social graphs and on-chain credit scores that survive wallet rotation.
key-trends
WHY DIDS ARE THE FOUNDATION, NOT THE FEATURE
The Current State: Fragmented Identity
Today's identity layer is a collection of isolated credentials, not a composable asset. This fragmentation is the root cause of poor UX, rampant Sybil attacks, and broken composability.
01
The Problem: Walled Garden Reputation
Your on-chain history is trapped in siloed applications. A 10,000 NFT collection holder on Ethereum has zero reputation on a new Solana gaming protocol, forcing them to start from zero. This kills user retention and protocol growth.
- Zero Portability: Reputation is non-transferable across chains or dApps.
- Repeated KYC: Users re-verify identity for every new service.
- Lost Network Effects: Protocols cannot leverage a user's global on-chain footprint.
0%
Reputation Portability
5-10x
User Onboarding Friction
02
The Solution: Sovereign Data Vaults
Decentralized Identifiers (DIDs) act as a user-owned root key, with Verifiable Credentials (VCs) as attestations. Think of it as a self-sovereign data wallet where you control what to share, with whom, and for how long.
- User-Centric: Keys and data are held by the user, not a central provider.
- Selective Disclosure: Prove you're over 18 without revealing your birthdate.
- Composable Trust: A VC from Coinbase for KYC can be reused across DeFi, gaming, and governance.
100%
User Data Control
-90%
Verification Redundancy
03
The Enabler: Portable Attestation Graphs
Protocols like Ethereum Attestation Service (EAS) and Verax are creating a universal schema registry for on-chain reputation. This turns subjective social data into objective, portable assets that any smart contract can query.
- Universal Schema: A standard format for trust (e.g., "KYC-Level-2", "Lens Follower").
- Chain-Agnostic: Attestations can be stored and verified on any EVM chain.
- Sybil Resistance Foundation: Enables Gitcoin Passport and Worldcoin to issue credentials that dApps trust without reinventing verification.
1,000+
Attestation Schemas (EAS)
~$0.10
Cost to Issue
04
The Problem: Sybil Attacks & Empty Airdrops
Without a foundational identity layer, airdrops and incentive programs are gamed by bots, diluting value for real users. Over 40% of airdrop tokens often end up with Sybil clusters, destroying community trust and tokenomics.
- Ineffective Filters: Basic TX volume or NFT holding checks are easily gamed.
- Value Leakage: Real user rewards are siphoned by sophisticated farming scripts.
- Eroded Trust: Communities view retroactive airdrops as unfair or compromised.
40%+
Airdrop Sybil Capture
$100M+
Annual Value Leak
05
The Solution: Proof-of-Personhood Primitives
DIDs enable cryptographic proof of unique humanity. Projects like Worldcoin (orb biometrics) and BrightID (social graph analysis) issue Verifiable Credentials that attest to "one-person-one-ID." This is a public good for the entire ecosystem.
- Sybil Cost > Reward: Makes large-scale farming economically non-viable.
- Pluggable Verification: dApps can require a VC from any trusted provider.
- Privacy-Preserving: The proof is a zero-knowledge credential; no biometric data is stored on-chain.
1:1
Human-to-ID Ratio
>5M
Worldcoin Verifications
06
The Killer App: Programmable On-Chain Credit
The endgame is undercollateralized lending. A DID with a rich graph of VCs—proven income via Sablier streams, consistent repayment history from Aave, and a Gitcoin Passport score—allows a smart contract to underwrite a loan. This unlocks trillions in latent DeFi liquidity.
- Dynamic Risk Assessment: Credit score is a live, updatable on-chain object.
- Capital Efficiency: Moves beyond overcollateralization (e.g., MakerDAO's 150%+ ratios).
- New Markets: Enables small business loans, invoice financing, and rent-to-own NFTs.
$1T+
DeFi Addressable Market
<100%
Collateral Requirement
DECENTRALIZED IDENTIFIERS (DIDS) AS THE FOUNDATION
Web2 vs. Web3 Identity: A Feature Matrix
A first-principles comparison of identity architectures, contrasting centralized custodianship with user-owned, portable identity primitives.
| Feature / Metric | Web2: Centralized Identity | Web3: Federated Identity (OAuth/SAML) | Web3: Self-Sovereign Identity (DIDs) |
|---|---|---|---|
Data Custodian | Platform (e.g., Google, Meta) | Identity Provider (e.g., Auth0, Okta) | User (via Wallet, e.g., ENS, SpruceID) |
Portability | Limited to federation network | ||
Censorship Resistance | |||
Verifiable Credential Support | |||
Sybil Attack Cost | $0.10 (SMS/Email) | $1-5 (KYC Lite) | $50+ (On-chain Gas + Reputation) |
Primary Standard | Proprietary API | OAuth 2.0, SAML 2.0 | W3C DID, Verifiable Credentials |
Interoperability Surface | Vendor-specific | Pre-negotiated trust frameworks | Open, cryptographic (e.g., IETF DIDComm) |
Recovery Mechanism | Centralized support (e.g., 'Forgot Password') | Centralized provider | Social recovery (e.g., Safe), multi-sig |
deep-dive
THE FOUNDATION
Deep Dive: The DID Stack in Action
Decentralized Identifiers (DIDs) are the base-layer primitive for composable user sovereignty, not a feature to be bolted on.
DIDs are infrastructure, not product. A DID is a cryptographically verifiable identifier anchored on a public ledger like Ethereum or Solana. This separates it from application-specific logins, creating a portable identity layer that protocols like ENS (Ethereum Name Service) and Veramo build upon.
The stack inverts the data model. Traditional systems silo user data in corporate databases. The DID-centric model gives users a self-sovereign data vault (e.g., Ceramic Network streams) where applications request temporary, auditable access, shifting control from platforms to individuals.
Composability drives network effects. A DID from Spruce ID can sign into a DAO on Snapshot, prove credentials via Verifiable Credentials (VCs), and port reputation across dApps. This creates a unified user graph that applications plug into, accelerating onboarding and trust.
Evidence: The W3C DID standard has over 100 registered methods. Adoption by Microsoft's ION on Bitcoin and the Ethereum Attestation Service (EAS) demonstrates the shift from proprietary accounts to interoperable, user-owned identifiers.
protocol-spotlight
WHY DIDS ARE THE FOUNDATION, NOT THE FEATURE
Protocol Spotlight: Building on the DID Foundation
Decentralized Identifiers (DIDs) are the atomic unit of user sovereignty, enabling composable trust across protocols like Farcaster, ENS, and Lens.
01
The Problem: Protocol-Locked Reputation
Every new dApp forces users to rebuild social graphs and reputation from scratch, creating massive onboarding friction and fragmented user data.
- Uniswap reputation ≠Aave reputation
- ~80% of new user acquisition cost is wasted on redundant KYC/AML
- Sybil attacks remain trivial without portable identity
80%
Wasted CAC
0x
Portability
02
The Solution: Portable Credential Graphs
DIDs enable verifiable credentials (VCs) to be issued and attested across ecosystems, creating a portable trust layer.
- Farcaster follower graph proves social legitimacy for Gitcoin Grants
- Coinbase KYC attestation unlocks Aave higher-tier borrowing
- ENS name + POAP collection acts as a universal on-chain resume
10x
Faster Onboarding
-90%
Sybil Risk
03
The Architecture: W3C DID Core + Ethereum
The W3C DID standard provides the URI schema, while Ethereum (via EIP-1056, EIP-5806) provides the global resolver and revocation registry.
- ERC-4337 Account Abstraction wallets are native DID containers
- Ceramic Network provides scalable, mutable data streams for VCs
- Polygon ID and iden3 implement zero-knowledge proofs for selective disclosure
100k+
DID Methods
~200ms
Resolve Time
04
The Killer App: Intent-Based Systems
DIDs unlock intent-based architectures where users declare outcomes, not transactions. Your identity becomes your bargaining power.
- UniswapX uses DIDs for off-chain order flow reputation
- CowSwap solver competition relies on verifiable solver credentials
- Across and LayerZero can prioritize messages from attested senders
50%
Better Pricing
Gasless
User Experience
05
The Business Model: Verifiable Services
DID infrastructure shifts monetization from data extraction to verification-as-a-service and attestation fees.
- Gitcoin Passport charges protocols for Sybil resistance scoring
- Worldcoin (World ID) sells proof-of-personhood attestations
- KYC providers issue reusable VCs instead of one-time checks
$1B+
Market Size
>70%
Margin
06
The Endgame: Sovereign Data Aggregators
Users own their aggregated behavioral data across all apps, creating a new class of user-owned data marketplaces.
- Sell your anonymized DeFi trading history to hedge funds
- Monetize your gaming skill attestation (Echelon, Axie Infinity)
- Brave Browser model applied to on-chain activity
100x
Data Value
User-Owned
Revenue
counter-argument
THE FOUNDATION
Counter-Argument: Are DIDs Just Over-Engineered Usernames?
Decentralized Identifiers are the foundational protocol for composable reputation and verifiable credentials, not a user-facing feature.
DIDs enable verifiable credentials. A username is a string; a DID is a cryptographically verifiable root key. This difference enables portable reputation across protocols like Aave and Compound without centralized attestation.
The protocol is the product. Comparing DIDs to usernames confuses the infrastructure with the application. The DID standard (W3C) is the TCP/IP layer for identity, while ENS or Unstoppable Domains are the DNS.
Composability requires a standard. Without a universal identifier like a DID, on-chain activity fragments across wallets. This prevents the reputation graph that protocols like Gitcoin Passport or EigenLayer restaking rely on for sybil resistance.
Evidence: The Ethereum Attestation Service (EAS) processed over 1 million attestations in 2023, a primitive that is fundamentally impossible without a DID-like schema to bind data to a subject.
FREQUENTLY ASKED QUESTIONS
FAQ: DIDs for Builders and Investors
Common questions about why Decentralized Identifiers (DIDs) are the foundational layer for the next generation of applications, not just an added feature.
DIDs are user-owned, portable identifiers that enable verifiable credentials without centralized authorities. Unlike Web2 logins, they allow users to prove reputation, compliance, or membership across apps like Gitcoin Passport, ENS, and Worldcoin, making identity a composable primitive.
future-outlook
THE IDENTITY LAYER
Future Outlook: The Next 18 Months
Decentralized Identifiers (DIDs) will transition from a niche feature to the foundational credential layer for all on-chain activity.
DIDs become the universal passport. Every high-value on-chain interaction, from undercollateralized lending to compliant DeFi, will require a verifiable credential. Protocols like Aave's GHO and Circle's CCTP will integrate attestations from Ethereum Attestation Service (EAS) or Verax to gate risk.
The wallet is the new browser. Just as HTTP/S is the web's trust layer, DIDs and sign-in with Ethereum (SIWE) become the default for dApp authentication. This kills the seed-phrase-as-username model and enables portable social graphs.
Zero-Knowledge Proofs (ZKPs) operationalize privacy. Users prove credentials (e.g., KYC, credit score) without revealing the underlying data. Polygon ID and Sismo use ZK to create reusable, private proof-of-personhood for sybil-resistant airdrops and governance.
Evidence: The Worldcoin orb has scanned over 5 million irises, creating the largest on-chain sybil-resistant identity set. Its integration with Optimism's RetroPGF demonstrates the demand for verified contribution tracking.
takeaways
WHY DIDS ARE THE FOUNDATION
Key Takeaways
Decentralized Identifiers (DIDs) are not a user-facing gimmick; they are the essential plumbing for scalable, secure, and composable on-chain systems.
01
The Problem: Fragmented User State
Every dApp today siloes your identity, reputation, and assets, forcing you to start from zero. This kills network effects and creates a terrible UX.\n- Repeated KYC/AML for every DeFi protocol\n- No portable reputation across social or gaming apps\n- Fragmented airdrop eligibility across wallets
10+
Wallets Avg.
0%
Portability
02
The Solution: Sovereign Data Vaults
DIDs anchor a user-controlled data store (like Ceramic or Tableland), separating identity from application logic. This turns user data into a composable primitive.\n- ZK-proofs verify credentials without exposing data\n- Universal logins via ENS or Unstoppable Domains\n- One-click onboarding across the ecosystem
1
Universal ID
-90%
Onboard Friction
03
The Protocol: Verifiable Credentials (VCs)
DIDs enable Verifiable Credentials, the machine-readable proofs that power trust. This is how you prove you're a human, accredited, or have a credit score without a central issuer.\n- Sybil-resistance for Gitcoin Grants and airdrops\n- Under-collateralized lending with on-chain credit scores\n- Compliance-as-a-service for institutional DeFi
ZK
Proof Standard
$1B+
DeFi TVL Potential
04
The Infrastructure: Ethereum Attestation Service (EAS)
Schemas and attestations on-chain (via EAS or Verax) create a universal graph of trust. This is the public ledger for reputation that any app can query.\n- Schema registry for standardized credentials\n- Revocable attestations for dynamic reputation\n- Permissionless verification for any smart contract
10M+
Attestations
~$0.01
Cost Per Attest
05
The Killer App: Programmable Identity
When identity is a smart contract primitive, it becomes programmable. This enables dynamic NFTs, automated royalty streams, and context-aware DAO governance.\n- NFTs that evolve based on holder's on-chain activity\n- Auto-compounding loyalty rewards across platforms\n- Delegated voting power that adapts to expertise
100%
Composability
24/7
Automation
06
The Endgame: User-Owned Networks
DIDs invert the platform model. Instead of apps owning users, users own their graph and monetize their own attention and data. This is the core of DeSoc.\n- Portable social graphs breaking Lens and Farcaster walled gardens\n- Data dividends from AI training on your consented data\n- User-centric ad markets that bypass centralized aggregators
You
Own the Graph
1000x
Market Efficiency
ENQUIRY
Get In Touch
today.
Our experts will offer a free quote and a 30min call to discuss your project.
NDA Protected
Confidentiality24h Response
Time to ValueDirectly to Engineering Team
No Sales Fluff10+
Protocols Shipped
$20M+
TVL Overall