So a private key is stored locally on device and the corresponding public key is stored in the server.

That’s pretty much just Nostr sign-in.

The only difference is that passkey approach generates a new key for every app. It’s like using a different private key for every nostr client. 

 Sounds like a massive difference. A compromised nsec would be catastrophic. 

 Yes. This discussion has changed my attitude towards Nostr Signin/Connect