The text explores the evolution and challenges of Web3, emphasizing the necessity of creating an identity layer to support its growth and innovation. Initially, Web3 focused on asset tokenization and smart contract applications, which led to diverse decentralized applications (dApps) and financial services. However, the ecosystem faces risks of over-financialization, which could allow affluent individuals to exert excessive influence. To overcome these challenges, Web3 needs a technological stack that leverages users' economic and social attributes, promoting personal relationships and trust alongside transactional activities. The text advocates for integrating social capital into Web3 through decentralized identity solutions that protect user privacy while enabling various applications. By using blockchain, verifiable credentials, and oracles, these solutions aim to establish a robust on-chain identity layer, offering benefits like reduced loan rates for users with good credit histories and more secure interactions in decentralized autonomous organizations (DAOs) and other platforms. The document concludes that decentralized identity solutions are integral to Web3's expansion, promising enhanced privacy, transparency, and user control over data.