Traditional means of recovery are still valid options — cloud backup, key generation using a word phrase, offline recovery and social recovery.
Here are couple of diagrams how recovery can be handled in the Hyperledger Indy ecosystem. More concepts described here:
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Decentralized identity doesn’t remove the trust relationship from the picture — it only solves the problem of privacy, data ownership and data exchange. If you lose your passport today, you’d have to go to a trusted issuer party to get a new one. The same applies to decentralized identities — you can get your credentials back, you’d just have to prove you are you, using interaction with the trust domain.
To your point though, yes, there’s a single point of failure that if you lose your wallet with keys, you lose your identity credentials — and this is a problem we’re working to solve.