Sounds they want self custody of their keys. This isn't what the general public want.

Decoupling identity from social is a good idea but you can't just migrate the key storage to a single custodian entity. There'd need to be a multiple custodians to ensure the same power imbalances didn't reappear in a different form (e.g. Google owning everyone's logins).

Exactly. There is no magic trustable non-local/distributed system that replaces 'self-hosted' for this purpose.

All that is needed is a to create your local identity (e.g. like storing fingerprint biometrics on your laptop) and a clever way to sync between physical devices (e.g. through bluetooth).

We're in this weird situation where people don't want to be responsible for managing their own data/id, but can't trust others to do so for them.