Why Pseudonymity Is Not Enough for True Web3 Reputation

Pseudonymity is a data desert. A wallet address reveals transaction history but provides zero context about the entity behind it. This creates a fundamental barrier to underwriting trust for lending, governance, or social coordination.

Reputation requires persistent identity. Systems like Gitcoin Passport and ENS attempt to aggregate off-chain signals, but they are opt-in and lack sybil resistance. A wallet's history is not a reputation.

The paradox is that transparency obscures. Public ledgers like Ethereum and Solana expose every action, but without a persistent identity layer, actors can atomize their reputation across infinite addresses, evading consequence.

Evidence: Over 30% of DeFi liquidations involve wallets created less than 24 hours prior, demonstrating the systemic risk of disposable identities. Protocols like Aave and Compound cannot underwrite uncollateralized debt without solving this.

Pseudonymity creates sybil farms. A single global identity graph, like a wallet's transaction history, is a poor reputation primitive. Users create infinite wallets to game systems like airdrops or governance, as seen in the LayerZero sybil self-reporting debacle.

Reputation is inherently contextual. A user's standing in DeFi lending (e.g., Aave) differs from their standing in a DAO governance forum (e.g., Arbitrum). Collapsing these contexts into one score destroys signal and creates perverse incentives.

The solution is attestation-based proofs. Systems like Ethereum Attestation Service (EAS) and Verax enable portable, verifiable claims about specific contexts. A user proves their Gitcoin Passport score for funding, not their entire wallet history.

Evidence: Gitcoin Passport, which aggregates off-chain attestations, saw over 500k passports created, demonstrating demand for contextual identity proofs over monolithic graphs.

Pseudonymity is a liability. It forces protocols to treat all new wallets as equal, creating a Sybil attack surface that inflates airdrop costs and cripples governance. This is the fundamental flaw in today's DeFi and DAO models.

Reputation requires persistent identity. A wallet address is not an identity; it is a disposable key. True reputation accrues across multiple addresses and chains, requiring a ZK-separable identity layer that proves historical actions without linking them.

Zero-knowledge proofs separate action from actor. A user proves they performed a specific on-chain action (e.g., 'voted in 10 Compound proposals') without revealing which wallet did it. This enables reputation portability across applications like Aave and Uniswap Governance.

Evidence: The failure of Quadratic Voting in early DAOs like Gitcoin Grants demonstrated that pseudonymity without proof-of-personhood leads to trivial Sybil attacks, corrupting funding outcomes.

Pseudonymity is a liability. A static wallet address is a single point of failure for reputation. Sybil attacks on platforms like Aave or Compound governance prove that without persistent identity, reputation is cheap to manufacture and impossible to port.

KYC solves the wrong problem. Traditional verification anchors to a legal identity, which is irrelevant for on-chain behavior. The need is for a cryptographic identity that attests to actions, not passports, enabling systems like Gitcoin Passport.

The solution is attestation graphs. Protocols like Ethereum Attestation Service (EAS) and Verax create a portable reputation layer. Reputation becomes a composable asset built from verifiable claims, not a centralized KYC database.

Evidence: Over 1 million attestations have been created on EAS, demonstrating demand for a decentralized credential system that transcends simple pseudonymity.