When DeFi Turns Reputation Into Middleware

“Social reputation” keeps turning up on every timeline with the confidence of a solved problem.

It’s pitched as the missing layer. The thing that will finally let DeFi graduate from over-collateralized lending into something resembling real credit. The thing that will make identity usable without surrendering to surveillance. The thing that will push the ecosystem toward maturity—clean it up, make it legible, make it safer.

I understand the itch. DeFi has spent years pretending that credit is an aesthetic choice. Over-collateralization is a constraint dressed up as prudence. It’s also a filter that quietly excludes most of the world by design.

So yes, reputation will show up. It has to.

The risk here isn’t that we will adopt reputation. Humans have always kept score; we’ve been gossiping and ledger-keeping since we lived in caves. The risk is a specific design trajectory where reputation becomes composable. A reputation you can plug into anything like an API, and reuse everywhere like a token.

That’s when “creditworthiness” turns into “eligibility.” Eligibility turns into refusal. Refusal turns into control.

Reputation isn’t just information. It’s a coordination weapon. And once it becomes infrastructure, it becomes a kind of power that doesn’t need to persuade you, because it can simply deny you.

This is not an argument about whether reputation is “good” or “fair.” That debate is a decoy.

The sharper question is this: what happens when reputation becomes middleware? When it becomes the default dependency that everything else quietly imports?

Because coercion scales when systems learn to punish without touching you. And crypto—being crypto—will happily call that “product.”

The world DeFi came from already runs on pre-emptive suspicion

Modern finance loves to imagine itself as a neutral machine: math, risk, actuarial tables. In practice, it’s a stack of reputations—credit bureaus, bank risk models, sanctions lists, KYC heuristics—stitched together with institutional memory and fear.

Some of it is legitimate risk management. A lot of it becomes a bureaucracy of refusal once scaled.

A concrete example: de-risking—when financial institutions terminate or restrict relationships with clients (or whole categories of clients) because the perceived compliance risk or cost isn’t worth it. The World Bank has been blunt about where this leads: de-risking can threaten to cut off remittance companies and local banks in certain regions from access to the global financial system.

The IMF has documented the withdrawal of correspondent banking relationships as well—another flavor of the same instinct, shaped by profitability, compliance burden, and post-crisis enforcement environments.

Regulators (like the FATF) have tried to push back, explicitly saying that de-risking should not be used as an excuse to avoid a risk-based approach, and that terminating relationships should be case-by-case, not a wholesale cutting loose of entire categories.

And yet the roller keeps getting used.

Why? Because exclusion is the ultimate efficiency. Once a sector is marked “high friction,” the market routes around it. You can call it risk management, but from the receiving end, it feels like inherited guilt.

People in flagged jurisdictions suffer for sins they didn’t commit. As a Nigerian, I don’t have the luxury of theorising from afar. This is my lived reality.

And that’s why I’m prickly about seeing the same instinct smuggled into DeFi under cleaner branding. Because DeFi’s original promise was access without permission. Not “better UX.” Not perfect access, not safe access—just a system where the default posture was inclusion.

The Swiftification pattern: When coordination becomes leverage

There is a historical lesson here that crypto keeps re-enacting because it’s allergic to history unless it’s related to a token.

SWIFT was born from a coordination problem: banks needed a standardised, more reliable messaging system for international transfers—Telex was on the way out. SWIFT’s own history frames it as a cooperative utility created to transform cross-border value transfer.

And then something predictable happened.

When a coordination layer becomes universal, it stops being “just plumbing.” It becomes leverage. Denial becomes a geopolitical instrument.

In 2012, SWIFT was instructed to disconnect sanctioned Iranian banks following an EU Council decision—an “extraordinary and unprecedented step,” in SWIFT’s words, effective on a specific date and time.

That’s the pattern I want us to take a cold, hard look at:

1. A fragmented world standardizes for efficiency.
2. The standard becomes dependence.
3. Dependence becomes enforcement.

Nobody has to be evil. Incentives do the work for free.

Crypto is currently building its own coordination layers—then calling them UX.

UX is not neutral. UX comes with politics.

If you want to see the trade, don’t look at ideology. Look at infrastructure.

On Ethereum, the chain can be decentralized, while access to the chain quietly centralizes.

When major hosted RPC providers go down, it’s not the chain that “dies,” but the default interface to it. This has happened in practice: Infura outages have disrupted access for popular wallets and dapps, sparking renewed debate about where decentralization ends and dependency begins.

Then there’s MEV.

After Tornado Cash was sanctioned in 2022, a large share of Ethereum blocks were routed through OFAC-compliant relays—an incentive-driven form of soft censorship that raised the question: who is actually writing the de facto rules of the road?

And scaling?

Rollups are a UX miracle. They also introduce privileged actors in the name of performance. Optimism describes its sequenceras “a single privileged node” that accepts user transactions to construct the chain. \n Arbitrum similarlydescribes the sequencer as an entity granted specific privileges over ordering transactions, including the ability (if malicious or faulty) to reorder or temporarily delay inclusion.

Again: none of this requires villainy. It’s rational engineering. It’s “make it fast.” It’s “make it usable.”

But here’s the hidden cost: when most users touch the system through one layer, that layer becomes the system. And whoever controls it inherits the power to define what is “normal.”

So when we talk about composable reputation, we’re not talking about a cute identity feature.

We’re talking about a primitive that can be imported by every UX chokepoint we just described.

A system that returns 403 Forbidden with the calmness of an HTTP status code.

What makes reputation dangerous in DeFi is not ethics. It’s properties.

When reputation is local and messy—your neighborhood’s vibe, your social graph’s gossip—it’s contestable. It’s annoying, but it has friction.

The coercive versions of reputation converge on three properties:

• Portability. A credential or score can travel across contexts.
• Legibility. Third parties can cheaply interpret it (usually as a number, a flag, a tier).
• Actionability/revocability. Someone can use it to deny you participation—or invalidate the assets you need to function.

Reputation without these properties remains social. Reputation with them becomes a gate.

DeFi’s unique risk is that composability turns portability into an instinct. We are building a world where identity primitives become APIs, and wallets become passports.

A score starts life as a Sybil filter to stop airdrop farmers. Then it gets reused for grants. Then governance. Then lending. Then “safety.”

That is product gravity.

The rails are already being laid

A lot of the tooling is genuinely elegant.

Take DIDs and Verifiable Credentials. The W3C’s Verifiable Credentials model describes a three-party ecosystem—issuers, holders, verifiers—for exchanging tamper-evident credentials. DIDs, similarly, are designed to be resolvable identifiers that don’t require being leased from a central authority.

In isolation, that’s beautiful architecture.

When you put it all together, it’s a reputation supply chain.

And then you have Soulbound Tokens. The “Decentralized Society” paper explicitly frames SBTs as non-transferable tokens encoding commitments, credentials, and affiliations—trust networks that can establish provenance and reputation.

Again: the ambition is clear. Make reputation readable.

Here’s the moment where technical meets political:

Once credentials become pluggable, they stop being a one-off proof and start being a reusable block of eligibility that follows you everywhere.

And the thing that makes dystopias efficient is not a single score. It’s the transfer mechanism: a mark in one domain quietly producing consequences in another.

That’s why “social credit” is such a sticky metaphor. Not because it’s a single number (it often isn’t), but because it shows how cheaply systems can share exclusion once the rails exist.

A cage in the image of a seatbelt

Now we get to the part crypto always tries to wave away: power geometry.

Binance’s Account Bound Token (BAB) is a clean example because it’s not theoretical. It’s a credential for users who have passed KYC, and it’s explicitly described as revocable.

Revocability is always sold as common sense: compromised wallets, sanctions compliance, mistakes, account recovery. Fine. Those are real concerns.

But in a system of financial participation, validity is the ground beneath your feet. If an issuer can revoke your identity credential, you don’t have “reputation.” You have conditional access. You’re in the club on a lease.

Nobody sells a cage as a cage. They sell it as a seatbelt.

And once DeFi normalizes revocable identity as a primitive, it becomes very easy for everything else to key off it. Not because builders are evil—because builders love reusing components.

Credit is a legitimate itch with a tempting scratch

Let’s stay honest: under-collateralized credit is a real frontier.

Protocols like Goldfinch and Maple exist precisely because over-collateralization is capital-inefficient and exclusionary. Even research overviews of undercollateralized DeFi credit emphasize the role of credit assessment/underwriting layers sitting between lenders and borrowers.

Wanting to know if someone will repay is just finance.

The question is: what does the system choose to learn?

When creditworthiness becomes indistinguishable from “social reputation,” the system stops measuring repayment behavior and starts measuring conformity—often through proxies that scale cheaply: geography, social graphs, device metadata, the vibe of a jurisdiction.

And you already see the logic creeping outward in places that started with noble intent.

Gitcoin Passport, for instance, aggregates “stamps” and assigns weights based on cost of forgery and the ability to signal unique humanity, producing a score meant to fight Sybil attacks.

Then the score starts doing more jobs.

Optimism’s governance has referenced proof-of-personhood mechanisms (Passport or World ID) for end-user participation thresholds in the Citizens’ House context.

Again: understandable. Bots are real. Governance capture is real.

But once the ecosystem gets used to a portable “humanness” score, it’s naive to expect it to stay politely in the Sybil sandbox.

Composability doesn’t respect intentions. It respects convenience.

Privacy tech won’t save us from bias

The strongest technical rebuttal to surveillance fears is the rise of zero-knowledge proofs: proving the validity of a statement without revealing the underlying data. Ethereum’s own documentation explains the basic promise in plain language.

This matters. It’s real progress.

But privacy is not the same thing as justice.

ZKPs can hide who you are. They don’t automatically fix how you were judged.

If the issuer’s model is biased—if it encodes old-world assumptions about “risky” jurisdictions, or uses proxies that correlate with protected traits—then you end up holding a beautifully sealed, cryptographically private verdict.

The credential is private. The exclusion remains.

The bloodstream problem: stablecoins and the revocability of money

Even if we perfected privacy and fairness at the reputation layer, we still have the uncomfortable dependency at the heart of the stack.

Stablecoins are DeFi’s bloodstream. And major centralized issuers operate under legal obligations that can override the permissionless façade.

Circle’s USDC terms explicitly reserve the right to “block” certain USDC addresses and, in certain circumstances, freeze associated USDC. Circle (via the CENTRE consortium at the time) has also confirmed freezing USDC at law enforcement’s request.

This is not a moral indictment of Circle. It’s a structural observation.

When the money itself is revocable, any reputation system that routes through regulated chokepoints becomes de facto permissioned—especially once portable eligibility scores start informing who counts as “safe.”

Where this is headed (whether we like it or not)

Identity is becoming core infrastructure for three reasons that aren’t going away:

• Sybil resistance (bots, airdrop farming, governance integrity)
• Regulation (travel rules, sanctions compliance, institutional adoption)
• Proof-of-personhood in the age of AI

World ID explicitly positions itself as an “anonymous proof of human” to prove uniqueness online.

It’s also faced regulatory scrutiny around biometric data collection and privacy—for example, Spain’s temporary ban in 2024.

On the other end of the spectrum, privacy-first identity tooling like Self Protocol is showing a path where you can generate zero-knowledge proofs from a passport and disclose only what you choose.

So yes: there are ways to honor privacy.

But the control question remains: what gets shared, who can deny, and what downstream systems treat as authoritative.

That’s the part builders love to defer because it feels like governance, not code.

Which is exactly why it matters.

Recalibrating the Code of Access

If DeFi wants under-collateralized credit without rebuilding a global permission regime, it needs design commitments that are harder than vibes and stronger than “trust us.”

1. Design friction as a feature (Siloed reputation): If a lending protocol’s credit score can be seamlessly imported by a governance protocol to block voting, we have created a caste system.

• The Fix: Enforce contextual friction. Reputation standards should be domain-specific by design. A repayment credential should not be readable by a governance contract without an explicit, user-initiated bridging action.
• The Principle: In the physical world, your credit score doesn’t stop you from entering a voting booth. In crypto, composability collapses that wall. We must rebuild it.

2. Expiration over revocation. Revocation is the “kill switch” of identity—it’s infinite, sudden, and often lacks due process. It is the tool of the authoritarian.

• The Fix: Lean on short-lived, expiring credentials rather than indefinite ones that require active revocation.
• The Principle: If I am “risky,” make my credential expire next week so I have to re-prove my standing. Do not give an issuer a permanent button to delete my existence from the network. Shift the default state from “access until banned” to “access that must be refreshed.”

3. Open source the sorting hat. ZKPs protect the user’s data, but they shield the issuer’s bias. If the algorithm determining “personhood” or “creditworthiness” is a black box, we are just privatizing discrimination.

• The Fix: Algorithmic transparency. If a protocol gates access based on a score, the logic generating that score must be onchain or verifiable.
• The Principle: You can hide my data (privacy), but you cannot hide the rules of the game (fairness).

4. The right to fork Identity. In Web2, if X(fka Twitter) bans you, you lose your graph. In Web3, if an issuer bans you, you shouldn’t lose your history.

• The Fix: User-custodied history. Data must be stored in a format where the user can take their raw interaction history to a competitor risk model if the primary one de-risks them.
• The Principle: A reputation system without an exit door is just a retention trap.

A final thought to the builders: DeFi will not become real finance by importing the old world’s most powerful instinct—pre-emptive suspicion.

It will become real finance by doing something even harder: building credit without building caste.

Efficiency is not the same as freedom. If we make reputation composable without making it contestable, bounded, and opt-in, we haven’t escaped the bank’s policy manual.

We’ve just automated it into an API call.

And APIs don’t have to explain themselves.

They simply return: 403 Forbidden.

\