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In the 3-rd case of data breach, the identity thief is indistinguishable from the original owner. As such it is preferable to reduce the likelihood of data breaches, rather than trying to mitigate the consequences of a tier 3 data breach. We should consider non-technical factors as well: encouraging good security practices, opting-in to features that trade security for convenience, providing good middle-grounds between security and convenience and so on.
Key collision is not a factor: It is astronomically unlikely that two ed2559 keys coincide. Specifically, it's 1 in 2256 or 1 in 1077. The probability of no two keys coinciding given that the ed25519 algorithm works as advertised is 10-69 (due to the birthday paradox), if there are 108 or one hundred million accounts on the same network. Even assuming that the number of historical accounts is larger, it is practically impossible to generate the same key twice.
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