NFTs, Social Tokens, and Points: How Should On-Chain Reputation Systems Be Built?
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NFTs, Social Tokens, and Points: How Should On-Chain Reputation Systems Be Built?
On-chain reputation and on-chain identity are the next major frontier in cryptocurrency, enabling an entirely new category of applications.
Navigating Web3 tides with focused insightsAuthor: Zatara
Translation: TechFlow Intern
Original Title: "NFTs, Social Tokens and Scores"
The Future of Reputation Scores Is Tied to Community
In the real world, we can use a driver's license to prove our identity, but it doesn't reveal enough personal information or reputation. To understand someone’s background or history in real life, you might need to ask mutual acquaintances or engage them in conversation about shared interests. However, getting to know someone deeply takes significant time and lacks efficiency.
By contrast, learning about someone online and understanding their social reputation is much easier. With just a few minutes on Facebook or a Google search, you can view someone's photos, thoughts, shared articles, and infer their reputation from this data. But there are two current problems with online methods: first, everyone is actively managing their online image, and second, authenticity is hard to verify.
This is where decentralized networks (also known as Web3) come in. Now, most of our data lives on-chain—open, accessible, interoperable, and usable across many types of decentralized applications. Never before has it been so easy to learn about a person or assess their social reputation.
In fact, our online identities and social reputations aren’t just core data points like names, serial numbers, or ranks—they’re evolving. Depending on context (e.g., at work, on Twitter, among friends), we can emphasize different aspects of our identity. The more information we place on-chain, the more accurately we can quantify personal value relative to actual worth. Using Web3 technology to properly evaluate social reputation allows people to view others’ profiles (abilities, values, status) from a perspective of verification rather than trust, enabling a new level of interaction.
However, while we're increasingly storing data on-chain, we still lack an effective system for quantifying our social reputation. Existing solutions all involve trade-offs, and none are perfect yet.
Solution 1: Quantifying Reputation via Social Tokens
Social tokens are virtual currencies that exist on blockchains. They can be earned by completing specific tasks and redeemed for other cryptocurrencies or exclusive community benefits such as access to gated content or voting rights on future strategic decisions.
These virtual currencies are essential for the efficient operation of decentralized autonomous organizations (DAOs). They can serve as payment, build stronger trust, align incentives, and retain contributors.
In professional contexts, social tokens function as digital currency within DAOs (which we can liken to Web3 startups). They effectively measure in-game skins and community engagement, and offer valuable micro-practices for quantifying social reputation—particularly in how experience, reputation, and online achievements are measured.
The more tokens a person holds, the greater their contribution to and support for the growth of a DAO. Platforms like Coinvise have already implemented such features, aiming to better reflect work quality and community impact through social tokens.
Social tokens can serve as verifiable credentials when applying to join a DAO. In exchange, decentralized communities gain the ability to pre-assess a candidate’s value and assign roles accordingly within projects.
Social tokens provide a strong system for discovering, analyzing, and utilizing user-generated data from other apps, platforms, networks, or DAOs.
However, several challenges remain with social tokens:
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Anyone can buy tokens—Currently, people can boost their reputation and voting power simply by purchasing tokens, which is unfair to those who earn them through effort. We will need a system to distinguish between “bought” and “earned” tokens.
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Web3 wallets aren't optimized for social tokens—Current wallets don't support convenient ways for users to showcase their tokens. Web3 wallets should be optimized for social tokens, creating dedicated spaces and allowing easy management (including hiding or displaying them).
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Social tokens are still in experimental stages—To date, they haven’t achieved strong network effects. We need more DAOs adopting them for quantifying social reputation before we see widespread adoption.
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On-chain transactions are expensive—Since members must pay gas fees to send social tokens, using them purely for building social reputation is currently costly (though Layer 2 blockchains are emerging to solve this issue).
Solution 2: Quantifying Reputation via NFTs
"Non-fungible tokens" (NFTs) are typically a means of community access. They convey status, scarcity, and a sense of belonging to specific communities. Collections of NFTs represent membership in various communities and unlock special privileges.
They are a strong method for quantifying reputation. After the 2020 hype cycle around NFTs, they’ve already developed powerful network effects. Among Web3 technologies, NFTs are one of the most widely adopted. People have built entire online identities around their NFTs (e.g., @punk6529 or @BAYC2745), demonstrating their ease of adoption, use, and integration. Additionally, dozens of projects have created Web3 social/identity tools based on NFTs. This technological network effect is the strongest argument for using NFTs as a foundation for identity.
NFTs are also excellent for showcasing affiliation with specific communities, and Web3 wallet interfaces are optimized for displaying community membership. Buying a rare NFT instantly boosts social reputation—it’s that simple.
Finally, because NFTs do not depend on liquidity for existence or value, they incur no costs related to maintaining liquidity, making them a promising and cost-effective way to quantify social reputation.
However, several issues must be addressed before NFTs can become an effective method for quantifying reputation:
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They are issued only once at a specific point in time. Compared to real-time observation of someone’s reputation, they act more like a static “badge.”
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They are transferable and often reflect wealth and status more than actual reputation (e.g., CryptoPunks, BAYC).
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They benefit communities but aren’t truly individual-focused (e.g., FWB, WHALE).
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They exist on public blockchains, so they’re publicly visible by default. Yet they reside on specific chains and lack cross-chain support, meaning reputations remain siloed.
Solution 3: Quantifying Reputation via Scores
As a famous quote goes, “It takes years to build a reputation and a day to ruin it.” The nature of reputation implies it's a “spectrum-based” holistic assessment—not a binary yes-or-no answer. It’s not only comprehensive but also varies depending on who is evaluating it. For example, your behavior in front of friends may differ from how you act around family or coworkers.
Scores offer a new perspective on quantifying on-chain reputation. They can be seen as dynamic numbers that continuously update and assess an address’s reputation based on both on-chain and off-chain behaviors (if linked to the same address). This mirrors how reputation works in the real world, enabling broader expressions of how someone earns “trust” and from whom. Depending on the creator’s choice, scores can be narrow or broad, derived from individual or combined analysis of on-chain data, snapshot voting records, and DAO contribution metrics. Examples include:
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Token: A specific HODL score measuring how long you've held certain tokens.
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Airdrop: A specific airdrop retention score measuring how many airdropped tokens you’ve kept compared to others.
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Protocol: A specific credit score measuring your reliability under dynamic load conditions.
Compared to other forms of reputation, scores are relatively new and hold much untapped potential. One major concern is that scores could become inherently binary, resembling systems like China’s social credit. The key difference is that these operate at the wallet level—if a user doesn’t want past behavior to follow them forever, they can simply switch wallets and start fresh.
Another key aspect of scores is that due to the volume of data involved, they are computed entirely off-chain and then uploaded on-chain. This means once a reputation score is stored on one chain, it can be used across others. The downside is that users must place some trust in the off-chain computation engine and ensure full transparency in the on-chain publication of scores. Platforms like ARCx are working to develop scoring capabilities to power reputation-enabled Web3 applications.
Conclusion
On-chain reputation and on-chain identity represent the next major frontier in crypto, enabling an entirely new category of applications. At this stage, everyone is exploring how different architectural approaches can achieve the ultimate goal of “creating real end-user value.” Given where we stand today, several critical questions deserve attention:
1. Should reputation elements be dynamic or static?
2. Should everything be stored on-chain, or can certain components live off-chain?
3. Should non-transferability be a strict requirement or optional?
4. Should reputation elements tie to real-world identities (social tokens), or support pseudonymous identities?
5. How should reputation data be stored on-chain? As an NFT, an oracle, or an ever-updating Merkle root upload?
These are fundamental questions about how to quantify reputation. But as more products enter the market, we’ll gradually arrive at answers to all of them.
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