(Lack of) Trust in Web3

How do we determine if a project or person has credibility, is reputable, or can be trusted in our daily crypto lives?

For a large part of crypto investing, we don’t. We quickly throw money at the latest cat memecoin, the NFT that promises a future token, or the game that ensures you they’ll have a promising economy powered by their token.

And that’s odd because traditional investment philosophy would have you thoroughly picking through balance sheets, listening to earnings calls or talking with a portfolio manager about upcoming opportunities. Investment decisions used to be calculated, thorough, and researched - sometimes over weeks and months.

Today we see Twitter talking about how a derivative of “cat wif hat” called “shark cat” is the BEST cat memecoin and is definitely going higher than $WIF in the next 3 days. Given the fast-paced nature of crypto, many traders forego this research in fear of missing out.

We rarely stop and say: Who’s behind it? What do they intend to do with it? Are the founders reputable? Do the founders have successful experience starting a memecoin? Is the developer actually from North Korea, with a backdoor to the smart contract?

That’s a classic “mid-curve” mentality and we often drop detailed research in favor of quick action.

The reality is: determining credibility is incredibly difficult in Web3, and it’s challenging to do any research at all.

And without it? I’d argue we’re simply gambling, not investing.

The trust signals we evaluate today

“You should check out this guy @CryptoGodJohn, he runs a group called WealthGroup that’s made me thousands of dollars!” says your favorite TikTok account.

How do you evaluate if this is wise advice? You probably start with his Twitter and dissect as much info as you can from his profile.

To a crypto newbie who learns from TikTok, the “fact” this account has 667k followers and millions of views on his tweets gives a strong perception of credibility. Surely @CryptoGodJohn is a huge influencer who knows what he’s talking about. He has helped all of those people make money, right?

Maybe not. The reality is, getting signal from Twitter profiles is extremely difficult, and the vast majority of metrics like followers, views, comments, retweets and likes can be purchased for pennies.

The only major signal we get from Twitter is “who do I follow that follows them?”

That implies two things, though:

1. You are active on Twitter and follow people you trust

2. You trust that a follow of that user by someone you respect is meaningful

Ultimately these signals are weak, hackable and - too often - used as a tool to imply credibility in a person or project where it is missing entirely.

In lieu of Twitter, how do we build trust?

The truth is, the most successful crypto participants rely on the opinions of the people around them - the people they trust the most.

Communities, private chats and “alpha groups” with friends are common on Discord and Telegram, as these provide safe avenues to discuss projects and their potential success.

If someone from your inner circle has vetted the project, knows someone on the team, or has reasonable confidence that the project won’t pull the rug from underneath us, we can use that as our proxy for trust and ultimately decision making. Your community has provided consensus.

Let’s continue our evaluation of @CryptoGodJohn with this in mind:

Given his metrics on Twitter, you might think of buying into a project of his or listening to his advice. The amount of mutual followers is typically a green flag, however his stats indicate he likely purchased many of his metrics, including those followers. That green flag should turn to a red flag.

So what’s the next best step to evaluate him? See what your friends think of him.

And, what do the most credible people in the space say about him?

As it turns out one of the more credible people in the space has denounced him and says he’s a known scammer. That is likely the most refined, researched and informative piece of information you could uncover when determining if you should trust a person or project in crypto. Community consensus, from trusted and credible sources.

Our best proxy: Reputational Backing

When friend.tech first launched, it had a few notable people sign-up but really didn’t capture significant attention. A couple of weeks of enthusiasm slowly waned as the minor initial interest wore off.

Two weeks later, it was announced that Paradigm invested in their round. Coinbase started tweeting about them, too. It instantly built credibility for the project, attracted points farmers, and sent their TVL through the roof. All with Racer, their CEO, and team being fully anonymous to their users.

One of the best ways that projects or people today are legitimized is through someone significant investing in the project- whether that be a VC, a known angel, or someone with influence in the space.

That’s great for giving us more signal to the market, but it centralizes reputation and credibility. A select few investors, funds, or angels can “king-make” what they invest in. We call this Fund Consensus instead of community consensus. The community’s say is diminished and we steer further away from decentralization.

We can do better

Our metrics, tools, and ability to observe and calculate who can be trusted in crypto are primitive.

So long as financial incentive aligns more with being a grifter, people will abuse the inefficiency of how we measure and evaluate trust. Until we change this, we will continue to be challenged by onboarding and retaining new users onchain.

With Ethos, we can bring concepts like community consensus onchain to make trust in crypto more observable, measurable and transparent. We can help people more deeply understand who they’re dealing with, what the history of someone’s reputation is, and who is vouching for and backing those people or projects.

We can create a new kind of proof, “Proof of Credibility,” to extend this knowledge beyond just word-of-mouth. A clearly indicated Ethos score that helps people quickly understand who can be trusted and who can’t.

We can make reputational backing community powered, not consolidated to a centralized select few.

Boost the signal, remove the noise.

This Summer on Ethos.