Author: Francesco Source: substack, @fraxcesco Translation: Shan Ouba, Golden Finance
There has been a lot of discussion about on-chain reputation for years. Since 2017, various projects have attempted to solve this problem and give on-chain users the ability to know who they are transacting with using a reputation layer. Today, with scams, SocialFi, and celebrities issuing worthless tokens, this is more important than ever.
This article introduces the concept of on-chain reputation and its importance, highlighting projects such as Debank and Ethos Network that are working on it.
On-chain reputation
On-chain reputation answers a simple question:
How do we assess the trustworthiness of people we interact with in a decentralized system?
In centralized systems, a third party typically ensures this reputation (e.g., credit score, Interpol Red Notice, bank account).
Is there a way to replicate reputation guarantees in a distributed system?
These efforts go beyond a single protocol and attempt to innovate in this area. To be practical, this reputation system must go beyond a single protocol and create a unique set of standards that can be recognized on Web2 and Web3 platforms, thereby establishing a universal framework across chains.
Any attempt not to become the new standard would render the process useless.
According to a16z, “to make decentralized identity mainstream, we must first build systems that map people’s relevant off-chain experiences and relationships on-chain,” then “we must build mechanisms to standardize, process, and prioritize the flow of data that will be added to the chain” and “address the inherent challenges of decentralized identity, including the lack of context for on-chain records and problems accessing the decentralized network.”
Currently, even the inputs recorded by blockchain explorers are very basic. Without the additional context of the transaction, it will be more difficult to map and assign a reputation score.
For example, receiving an NFT as part of an exchange should have a different weight than receiving an NFT for an extraordinary community contribution to a project.
Furthermore, in the crypto space, reputation comes in many forms, such as protocol trust, lending credit scores, and the track record of project founders.
Only when all these factors are taken into account will the system be applicable to a variety of use cases, incorporating on-chain reputation into "offline activities based on the publicly queryable nature of decentralized identities."
Three steps:
Recording data on the chain
Mapping and interpreting data
Converted into a “reputation score”
The credibility of true standardization
In its "Builders' Request", the Base team outlined their vision for the success of on-chain reputation. They likened "on-chain" to the next "online", arguing that reputation plays an important role in every on-chain account.
In this context, a “reputation protocol” could create more trust on-chain. They speculate that this could be similar to FICO (the most well-known name for credit scores) or Google Page Rank scores.
Wallets can use these standards as a fraud prevention mechanism to implement warnings for risky addresses. We have already seen Rabby take the lead in introducing warnings for new contracts or scam tokens.
Others that have introduced some reputation measures include blockchain analytics firms such as Chainalysis, which is based on on-chain behavior, and DeBank, which has created the DeBank Credit score.
The credit score is a "comprehensive measure of a user's authenticity, activity, and worth." A higher score means more activity and user authenticity, but in its current state, DeBank Credit cannot be used as a proxy for creditworthiness.
Additionally, we can observe the emphasis placed on formal identity verification, which is still a controversial topic in the crypto space.
An example of a successful reputation mechanism is Gitcoin Passport.
Gitcoin Passport calls itself an “authentication aggregation application.”
Just like a regular passport, users can collect stamps by verifying previous activities or performing tasks and by verifying them through different Web2 and Web3 validators:
Holonym（KYC）
Civic (biometric)
Google and LinkedIn (Web2)
Guild and Snapshot (Web3)
These seals increase the default Humanity Score, a proxy for trustworthiness to Web3 projects assigned to each user. A higher Humanity Score means more opportunities to be recognized, with a minimum score of 20 to be considered human.
Here are some examples of stamps that can be collected:
One of the advantages of Passport is that it protects user privacy, using a zero-knowledge approach to create a verifiable credential that proves a user has performed a specific activity but does not collect any personally identifiable information.
Another interesting endeavor is the “Proof of Verifiable Verification” being worked on by the Ethos Network.
Ethos is developing a “reputation platform” that is integrated into the broader ecosystem, not just limited to a single dApp.
This platform can be integrated into existing interfaces (Chrome plugins, Metamask extensions) and dApps. The blueprint of this new type of social consensus is similar to Proof of Stake, where users act as "social validators".
Users can "bet" on others to show their trust in them
Bad actors can be punished
Social consensus providers can receive rewards
Ethos introduces economic rewards and penalties to ensure:
Reputation is protected by economic security, and it becomes expensive to forge reputation
Reputation is valuable
Easier to observe social interactions
At the same time, a balance must be found to ensure that credibility cannot simply be purchased.
On the Ethos Network, users will be able to:
Evaluation: Development goes beyond providing credibility of economic bets
Bonding: Similar to staking, users can stake their ETH on others and earn ETH returns. The bonded person will receive 10% of the returns to incentivize validators and referrals.
Punishment: If a validator misbehaves, users who staked their ETH can propose a penalty to remove up to 10% of the offender’s staked ETH from the Ethos contract. Those who propose a rejected penalty will be penalized.
Certification: reflects authority, credibility, and influence from other sources
All of these mechanisms will be converted into a single reputation score.
While these mechanisms focus less on on-chain reputation, other notable examples in this area include:
Worldcoin: This VC-run giant promises to scan your iris and airdrop some WLD tokens for you. Whether its purpose is noble or utopian is up for debate. However, through biometric scanning of the user's iris, they bring proof of humanness. This opens up new avenues for venture, but is also an exciting experiment.
ENS: Converts crypto addresses into human-readable names, facilitating “on-chain messaging”.
A long road
Developing a truly standardized and universal on-chain reputation system will be a long and difficult road, and will encounter many challenges.
Centralized Solutions
The main challenge is ensuring that all these systems are truly decentralized and not controlled by a centralized party like Worldcoin or even Gitcoin Passport.
How can on-chain reputation be achieved in a decentralized manner? Any system that does not conform to this will lose its trustless element.
Crypto credibility can be manipulated/bought
Privacy must be protected
It must go beyond the binding of a single wallet and have universal applicability
This implementation will be the result of a joint effort of all participants, wallets, blockchain explorers, dApps, and the network.
Vision with real-world use cases
What is the ultimate vision of on-chain reputation? Here are some real-world examples and scenarios where on-chain identity can be helpful.
Public Resumes: Anyone can assess the reputation of other participants by assigning a single reputation score to each user. In addition, every article written, contribution or community participation is recorded and can be used as proof of reputation.
Celebrity tokens: As celebrity tokens become a new trend, data from these tokens can be used to determine the trust profile of each celebrity. We have seen a number of celebrities commit a series of scams. This problem can be partially addressed through a quick risk assessment to show users the risks of these tokens.
Meme developers: Meme developers are at their peak. However, many abuse this power to conduct “pump and dumps” or even outright scams. We have seen some personalities who have been serial meme developers, repeatedly scamming. Identifying whether a token’s deployer is a former scammer is very useful for users to conduct risk assessment.
KOL Selling: Crypto Twitter is characterized by influencers (KOLs) promoting these tokens while selling their holdings. Imagine if you could have a reputation ranking to determine whether your favorite KOL is trustworthy, or know who is a complete dumper and scammer.
Loyalty Programs: Developing an on-chain reputation system will allow dApps to have deeper information about user interactions, creating customized programs that focus on rewarding high-quality interactions that have high value to the protocol.
Other existing reputation tools
In addition to the ones mentioned previously, there are various tools that contribute to trust and accountability.
Reputation Building and Tracking
Collab.Land: An NFT-based bot that verifies ownership and DAO contributions.
Karma: Providing visibility into DAO contributions.
PNTHN: Tracking DAO member reputation.
SOURC3: On-chain reputation management on the platform.
Reputation and Authentication
Pentacle: Helps users navigate the protocol.
ONT ID: An identity framework for decentralized identifiers and verifiable credentials.
Krebit: Users can prove their identity without revealing their identity, protecting privacy.
Orange Protocol: A multi-chain reputation system as verifiable credentials.
OutDID: Zero-knowledge proofs for private identity authentication.
Reputation and governance
Metopia: A reputation system for governance.
Astraly: On-chain reputation and reputation-based token distribution platform.
Spect: A no-code tool that helps DAO contributors create child DAOs.
SourceCred: Helps incentivize contributors and rewards high-quality participation.