Why Anonymous Credentials Will Replace Traditional KYC

Sismo builds ZK Badges—non-transferable SBTs that prove membership or reputation from multiple sources. It enables granular, composable identity without doxxing the underlying wallet.

• Key Benefit: One-click proof-of-humanity from Gitcoin Passport or ENS without linking wallets.
• Key Benefit: Selective disclosure lets users prove they are, e.g., a DAO member or a Uniswap LP, not which specific account.

Worldcoin uses custom hardware (Orbs) to issue a global, privacy-preserving digital identity via iris biometrics. The core output is a ZK-proof of unique humanness.

• Key Benefit: Sybil-resistance at planetary scale, a foundational primitive for UBI and fair airdrops.
• Key Benefit: Complete privacy: The iris code is discarded; only the ZK-proof is used, disconnecting biometrics from on-chain activity.

Centralized KYC providers like Jumio or Synapse create massive, hackable databases of PII. Every protocol integration is a new attack vector.

• Key Flaw: Data breach liability shifts to the protocol, with regulatory fines up to 4% of global revenue under GDPR.
• Key Flaw: User friction kills conversion; ~40% drop-off during manual document upload.

Zero-Knowledge Proofs (ZKPs) enable verifiable credentials. You prove a claim (e.g., "I am over 18") without revealing the underlying data (your birthdate).

• Key Benefit: User-owned data: Credentials live in your wallet, not a corporate server.
• Key Benefit: Composability: A credential from Aave proving creditworthiness can be reused at Compound without re-submitting documents.

EAS is a public infrastructure for making attestations on-chain or off-chain. It's the universal ledger for statements of truth, from KYC approvals to product reviews.

• Key Benefit: Schema flexibility: Any entity (DAO, protocol, individual) can define a credential schema.
• Key Benefit: Permissionless verification: Trust is delegated to the attester (e.g., Coinbase), not the EAS protocol itself.

Built on EAS, Verax provides a cross-chain attestation registry for the L2 ecosystem. It solves credential fragmentation across Optimism, Arbitrum, and Base.

• Key Benefit: Layer 2 Native: Low-cost attestations make micro-credentials viable.
• Key Benefit: Network Effect: A credential minted on one chain is verifiable across all participating L2s, creating a unified reputation layer.

Proof-of-personhood systems like Worldcoin or Proof of Humanity are the assumed root of trust. Their failure cascades.\n- Centralized Oracles: Biometric data collection creates single points of failure and censorship.\n- Collusion Attacks: Determined actors can game subjective reputation or attestation systems.\n- Cost of Identity: The marginal cost to forge a credential must remain higher than the value extracted from the system.

Jurisdictions like the EU with MiCA and AML/CFT directives will not tolerate opaque financial flows.\n- Travel Rule Compliance: Anonymous credentials must eventually map to a legal entity for large transfers, recreating KYC.\n- Protocol Liability: Founders and core developers face extreme regulatory pressure, as seen with Tornado Cash.\n- The FATF Problem: Global standards push for VASPs to collect and share beneficiary information, undermining anonymity.

Managing cryptographic keys and zero-knowledge proofs is a non-starter for mainstream users.\n- Key Custody Burden: Loss of a signing key means loss of identity and all linked credentials—no recovery.\n- Proof Generation Cost: ZK-SNARK proving times and fees, while improving, add friction versus a 2-minute email form.\n- Fragmented Ecosystems: A credential from Civic may not be accepted by a protocol using Sismo, fracturing utility.

Credentials must reflect real-world status (e.g., accreditation, citizenship) which changes. Off-chain verifiers become centralized oracles.\n- Stale Attestations: A credential proving "US accredited investor in 2023" is worthless in 2025 without a live check.\n- Censorship Vector: Oracles like Chainlink or Pyth can be compelled to withhold attestation updates.\n- Data Source Integrity: If the source DMV database is hacked, the entire credential graph is poisoned.

On-chain activity linked to a persistent pseudonym creates a forensic fingerprint. Tornado Cash sanctions proved metadata is enough.\n- Credential Correlation: Using the same proof across protocols (Aave, Compound, Uniswap) links all activity.\n- Social Graph Reconstruction: Attestations from known entities (employer, university) de-anonymize the holder.\n- Zero-Knowledge, Not Zero-Metadata: The proof transaction itself reveals timing, gas patterns, and associated smart contracts.

The entities that need anonymous credentials most (users) have the least ability to pay for or sustain the system.\n- Who Pays the Prover? User-paid fees limit adoption; protocol subsidies are unsustainable.\n- Verifier Monopolies: If one zk-SNARK verifier circuit becomes standard (e.g., zkEmail), its controllers gain outsized power.\n- No Killer DApp: Without a DeFi or SocialFi application offering 10x better rates for verified humans, demand remains academic.

Every centralized KYC database is a honeypot for hackers, creating billions in liability and regulatory risk. It's antithetical to crypto's ethos and a single point of failure for user identity.

• Data Breach Cost: Average cost per record is ~$165 (IBM).
• User Friction: ~70% abandonment rate during intrusive KYC flows.
• Geographic Exclusion: KYC locks out the global un/underbanked.

Prove you're a verified human or accredited investor without revealing who you are. Protocols like Sismo, zkPass, and Polygon ID issue attestations that live in your wallet.

• Selective Disclosure: Prove age >18 or jurisdiction without DOB/passport.
• Portable & Sovereign: Your credentials are non-custodial, usable across dApps.
• Compliance Bridge: Enables Tornado Cash-compliant DeFi and real-world asset (RWA) onboarding.

Anonymous credentials enable new primitives. Imagine a DEX that only accepts verified non-US users, or a governance system weighted by proof-of-humanity.

• Sybil-Resistant Airdrops: Projects like Worldcoin (proof-of-personhood) combined with zk-Creds.
• Automated Regulatory Silos: Create pools for EU MiCA-compliant users only.
• Capital Efficiency: Uniswap pools with lower slippage for credentialed LPs.

This isn't just privacy tech—it's the gateway for institutional capital and mass adoption. RWAs, gaming, and socialFi require compliant anonymity.

• TAM: Global KYC/AML market is ~$15B, moving on-chain.
• Institutional Mandate: Funds cannot use raw DeFi without compliance rails.
• Network Effects: First-mover dApps (e.g., Aave, Compound) integrating zk-Creds will capture the next wave of users.