Soulbound tokens could unlock a host of non-financial use cases for web3 applications.
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What Are SBTs?
SBTs are not 1:1 representations of humans. Instead, they are tied to an individual, an organization or an entity. Specifically, they are bound to a wallet for its lifespan. For example, SBTs can show a record of history by an individual, such as employment history. However, the same individual (or entity) could have another SBT representing their non-professional affiliations. As such, it is possible to have several "Souls."
As we wrote above, SBTs have also been described as non-transferrable NFTs. While non-fungible tokens are unique assets belonging to an unknown wallet, SBTs are unique records of data belonging to a unique entity. Unlike NFTs, which can be freely traded for financial gain, SBTs do not have financial value and cannot be traded since their owner is clearly defined.
Benefits of Soulbound Tokens
However, with SBTs, you could endorse an individual or entity after having done business with them. Equally, they would tie a loan to a verifiable entity, unlocking a social aspect of credit and enabling undercollateralized loans.
How Can SBTs Be Used?
SBTs have several interesting use cases.
NFT owners still need centralized platforms, like OpenSea, to highlight their ownership of digital collectibles. With SBTs, it would be possible to prove the provenance of a non-fungible token by linking it to its owner's Soul (aka their unique wallet).
DAOs would be able to become "soul-backed" and massively improve their social coordination mechanisms. In their current form, DAOs are vulnerable to Sybil attacks, spam attacks that allow attackers to create multiple wallets to have more voting power. With soulbound tokens, DAOs would be able to distinguish between real Souls and fake wallets.
Furthermore, Souls with several SBTs could be given more voting power, as their record of trust would be higher.
"Loans and credit lines could be represented as non-transferable but revocable SBTs, so they are nested amongst a Soul's other SBTs—a kind of non-seizable reputational collateral—until they are repaid and subsequently burned, or better yet, replaced with proof of repayment.
SBTs offer useful security properties: non-transferability prevents transferring or hiding outstanding loans, while a rich ecosystem of SBTs ensures that borrowers who try to escape their loans (perhaps by spinning up a fresh Soul) will lack SBTs to meaningfully stake their reputation."
Thus, soulbound tokens could enable a tokenized, transparent and decentralized version of credit scores.
Certifications and Documentations
Another potentially promising field is certifications and documentation currently collected on centralized ledgers "behind closed doors." For instance, academic records or certifications not applying to a universal standard would be recorded by SBTs, creating a "proof of history" that cannot be tampered with.
Equally interesting would be proof of attendance records of real-life or digital events and gatherings. For instance, academic attendance could be recorded with a soulbound token, connecting it to a student's academic record and, later, to their record of employment.
Finally, SBTs could streamline employment records and increase their transparency. Even today, checking the veracity of an applicant's employment record is difficult. This is, even more, the case if you take into account records across different industries or countries. Soulbound tokens would provide a verifiable digital CV that increases an applicant's reputation.
How Do SBTs Work in Web3?
SBTs still do not exist on a widescale. However, conceptually they would be bound to a single crypto wallet and would be non-transferable. In essence, they would be similar to NFTs but without the transferability and financial features of the latter.
SBTs vs NFTs
NFTs are transferrable and contain a verifiably unique piece of information recorded on the blockchain, such as the data of a digital piece of art. They are not bound to a wallet or a single owner.
SBTs are not transferrable and contain verifiably unique information about their unique owner (their Soul), such as employment or medical records, certifications and others. They are bound to a single Soul. One Soul can have several SBTs with qualitatively different pieces of information.
What Are Examples of SBTs in Action?
Examples of future uses of soulbound tokens are:
- Proof of NFT provenance
- DAO voting
- Undercollateralized lending in DeFi
- Proof of attendance
- Digital employment records
- Digital proof of certifications, documentation, badges, and others
- Digital medical history
- Airdrops bound to Souls
What Are Binance Account Bound Token (BABT)?
What Happens If You Lose Your Soul?
If you lose your Soul, your token(s) would be recovered through social recovery. You appoint several "Guardians" to your SBTs, who can change the wallet keys with the approval of the majority. Such "Guardians" could be trusted individuals, organizations or others. However, this mechanism relies on continuous good relations with your Guardians.
Another mechanism would be community recovery. For instance, this would enable the issuers of certificates to change the keys of your "Certificate SBT" after you have given your approval. Both methods are still subject to real-world experimentation.
What Are the Drawbacks of SBTs?
One of the main points of criticism is that SBTs could enable a dystopian future with new levels of surveillance. By tying an individual's record of employment or health to a token, the parties with access to such information would hold enormous leverage over the entity the record belongs to. While SBTs are not supposed to be tied to the government, their functionality could still be abused.