Soulbound Tokens (SBTs) are digital tokens that represents the social identity of a person or an institution. SBTs are non-transferrable and are based on each blockchain account or wallet (Souls). Ethereum cofounder Vitalik Buterin, lawyer Puja Ohlhaver, and economist E. Glen Weyl proposed the Soulbound Tokens concept to address current limitations of NFTs. Since NFTs can be bought or sold to the highest bidder, leading to sky-high price of NFTs, especially for some popular NFT projects such as Bored Ape Yacht Club and CryptoPunks. This article will explain what Soulbound Tokens are and how exactly they work.
What is SBT?
Soulbound Tokens utilize blockchain technology to represent a person’s identity and are not transferrable. This could include any kind of data that makes up a person or business, such as medical records, employment history, or other details. “Souls” are the wallets that store or distribute these records.
As you may aware, people have different sides in their life and usually create multiple Souls to represent it. For instance, a “Medical Soul” for their medical records, a “School Soul” for their achieved education, and a “Work Soul” for their employment history. SBTs serve as a “human portfolio” that supports people to build a social identity that could be verified based on their previous history and experience in the Web 3.0 world.
Unlike NFTs, Soulbound Tokens don’t have any monetary value and cannot be traded or transferred once it’s issued to someone’s wallet (Soul).
How do Soulbound tokens work?
Soulbound Tokens allow you to not depend on the trust in someone or something in Web3. How can you place your faith on someone’s reputation in a system that may not be reliable? We will use borrowing money as an illustration here. SBTs may monitor a user’s DeFi borrowing history in addition to other factors that establish their risk scores in terms of how likely they would pay back the money, much like traditional bank credit scores.
SBTs could be a substitute for decentralized autonomous organizations (DAOs). DAOs could issue SBTs that assign voting power based on users’ engagement with the community rather than the existing governance approach, which is dependent on how many tokens a member is holding. This concept would provide the most devoted users with the best reputation the greatest voting power, similar to the weighted voting system.
Additional Use Cases of Soulbound Tokens
Besides medical records and employment history, SBTs have additional use cases state below:
- DAO sybil attack protection. A sybil attack is one of the biggest challenges in security for DAOs. When a group or an individual who has accumulated a great amount of governance tokens, which can influence the vote result. On the other hand, people will be able to see the originality of each vote and therefore see the correlation between Souls and votes with SBTs.
- Verification of attendance to an event, similar to Proof of Attendance Protocol (POAP).
- Keep track on a user’s borrowing and lending history on decentralized finance (DeFi).
- Find users’ lost keys by utilizing social recovery.
What is the future of Soulbound tokens?
The white paper claims that Souls and SBTs will be the cornerstone of a decentralized society that is characterized as a “transformative, pluralist future” in which interpersonal ties and social interactions are crucial building blocks for your Web3 identity.
Through the establishment of provenance and reputation, Soulbound Tokens can assist in resolving the problem of trust in Web3. Since they cannot be transferred, there is less chance that individuals will try to manipulate the ecosystem by purchasing status or fabricating accomplishments. As a result of a more intricate process of identity theft and impersonation, this may also reduce the frequency of Web3 scams.
SBTs have been a trending topic in Web3 recently. It will make people’s life easier by combining different records and experiences together. Think about when you see a new doctor, you no longer need to call your previous doctor to transfer your medical history. SBTs also provide indefinite opportunities and possibilities in the Web3 world and MEXC is looking forward to that.