Why Social Reputation Shouldn't Be Tokenized

Tokenization commoditizes trust. Representing reputation as a fungible asset on-chain, like a Soulbound Token (SBT), reduces complex social capital to a simple, tradeable score. This invites Sybil attacks and gamification, as seen in early airdrop farming that corrupted protocol governance.

On-chain signals are incomplete. A wallet's transaction history with Uniswap or Aave reveals financial behavior, not community standing or integrity. The Vitalik Buterin-co-authored "Decentralized Society" paper highlights this, arguing for composable, non-financialized SBTs over monetary scores.

Financialization corrupts intent. When reputation has a price, as with friend.tech keys, participation becomes mercenary. This destroys the organic social graph that protocols like Lens Protocol and Farcaster aim to build, replacing cooperation with extractive speculation.

Reputation is a derived signal. It is an emergent property of observable actions, not a discrete resource. Tokenizing it forces a liquid market onto a non-fungible social graph, inviting manipulation.

Tokenization creates misaligned incentives. Projects like Friend.tech demonstrate that when reputation is an asset, the incentive shifts from building credibility to extracting financial value. The signal becomes noise.

Signals degrade under financialization. Compare Gitcoin Passport (non-transferable attestations) to a hypothetical tokenized version. The former measures contribution; the latter becomes a speculative vehicle divorced from its source.

Evidence: The Sybil-resistance failure of airdrops proves this. When reputation (past activity) is monetized retroactively, it incentivizes the creation of worthless, low-signal accounts to farm the next drop, polluting the data.

Tokenizing reputation creates a market. Any tokenized social graph, like a Lens Protocol profile, becomes a financial asset. This transforms social capital into a tradeable commodity, which incentivizes Sybil attacks to manufacture false reputation for profit.

Perverse incentives dominate honest behavior. Projects like Friend.tech demonstrate that financialization precedes utility. The financial premium destroys the social signal, as users optimize for token value, not genuine interaction or trust.

Proof-of-stake governance models fail here. Delegated systems like Compound or Uniswap show that token-weighted voting leads to low participation and whale dominance. Applying this to social data centralizes influence among capital-rich, not reputation-rich, actors.

Evidence: The 2022 airdrop farming on Optimism and Arbitrum saw users create thousands of Sybil wallets to farm governance tokens, explicitly gaming a reputation-for-rewards system. This is the inevitable outcome of tokenization.

Tokenization promises liquidity and composability. The core argument is that a tradable reputation token creates a liquid market for trust, enabling its use as collateral in DeFi protocols like Aave or as a Sybil-resistance mechanism for projects like Optimism's Citizen House.

This model misapplies financial logic to social capital. Reputation is a non-fungible, context-specific signal. Tokenizing it treats a complex social graph like a simple ERC-20 balance, a reductionist error similar to early Web3's failed 'attention token' experiments.

The incentive structure is perverse and gameable. A liquid reputation market creates immediate profit motives to manipulate or sell one's standing, divorcing the signal from its underlying behavior. This is the fundamental flaw platforms like Friend.Tech expose.

Evidence: Markets corrupt non-market values. Academic studies on 'crowding out' show introducing monetary rewards for pro-social behavior often reduces intrinsic motivation. A tokenized 'like' ceases to be a genuine endorsement and becomes a financial instrument.