Soulbound Tokens - “Decentralized Society: Finding Web3’s Soul”

Soulbound Tokens - “Decentralized Society: Finding Web3’s Soul”
Soulbound Tokens - “Decentralized Society: Finding Web3’s Soul”
Binance recently unveiled Binance Account Bound as its own Soul Bound Tokens (BAB). The first-ever SBT to be released on the BNB Chain, the BAB token is non-transferable and worthless. BAB serves as a digital verification solution for Binance customers that have completed KYC and intend to address identity verification concerns in Web3

Non-fungible tokens (NFT) are a sort of blockchain asset that enables holders to demonstrate ownership of anything, whether it be physical or digital. Since each NFT is unique and cannot be duplicated, ownership of an NFT may often be bought and sold. These cryptographic assets are built on blockchain technology, to put it simply. They cannot be traded or exchanged in the same manner as other cryptographic assets. Non-fungible tokens (NFTs) are cryptographic assets on a blockchain that can be distinguished from one another by their distinctive identifying codes and metadata. They cannot be bought or exchanged for equivalent amounts like cryptocurrencies can. This contrasts with fungible tokens, like cryptocurrencies, which are interchangeable and can thus be used as a medium for business transactions. Non-fungible tokens have significantly improved the processes for claiming ownership of digital assets in recent years. Now that SoulBound NFT has arrived, it appears that truly non-transferable non-fungible tokens may soon be introduced.
Crypto fans are familiar with the web3 world and are aware of the constant stream of advances. One of these latest innovations is called Soulbound tokens (SBTs). Soulbound tokens are non-transferable and unique to an individual, storing relevant data that could include medical records, work history, and any type of information that makes up a person or entity's education credentials, employment history, club memberships, etc. The wallets that hold or issue these records are called “Souls.”
People might have several wallets (or Souls), each of which would reflect a different aspect of their lives. A person might, for instance, have a "Credentials Soul" for their professional background and a "Medical Soul" for their medical history. People would be able to create a verified, digital Web3 reputation based on their prior deeds and experiences thanks to souls and SBTs.
On the other side, souls may stand in for the organization that distributes SBTs. Companies, for instance, can be Souls that distribute SBTs to every employee. SBTs could be issued by a digital country club to confirm membership status.
The concept of “soulbound” assets on the blockchain was first discussed in a January 2022 blog. post by Vitalik Buterin. In it, he explained that in the popular fantasy game World of Warcraft there are powerful “soulbound items” that cannot be transferred or sold to another player once picked up. This idea was expanded on by Buterin and his colleagues in a May 2022 paper titled “Decentralized Society: Finding Web3’s Soul.” Soulbound tokens are described as non-transferable digital tokens that represent social identity in a decentralized society.
In the paper’s vision for a decentralized society, accounts called “Souls” will hold or issue SBTs that represent the “commitments, credentials and affiliations” of an individual holder. “Such tokens would be like an extended resume, issued by other wallets that attest to these social relations,” the authors explain.
SBTs can, in the most basic sense, be "self-certified" in the same way that a person can add their educational background or professional experience to a CV. Similar to how a university can provide a graduate with a certificate for successfully completing their studies, SBTs may similarly be awarded by Souls acting on behalf of people, businesses, or organizations.

Key points

  • Soulbound tokens are a means to "eschew today’s hyper-financialisation" of the web3 ecosystem to move to a decentralized society, "encoding social relationships of trust”.
  • SBTs improve upon the NFT concept to serve as a way for users to prove who they are and what they do.
  • Vitalik Buterin has stated that experiments around the concept will begin on the Ethereum blockchain soon.

How do SBTs work in Web3?

One of the major issues facing the Web3 sector is trust. How can you place your faith in someone's reputation in a system that is meant to be unreliable? Let's use borrowing money as an illustration. Similar to traditional bank credit scores, SBTs could track a user’s DeFi borrowing history as well as other metrics that determine their risk profile.
SBTs are another substitute that has been put out for voting in 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 possesses. This concept would provide the most devoted users with the best reputation and the greatest voting power.
SBTs have the ability to enhance the integrity of DAO voting in addition to establishing a reputation-based voting mechanism, specifically by protecting against Sybil attacks, one of the main dangers to the existing DAO governance architecture.
A Sybil attack involves one or more bad actors taking control of the majority of the governance tokens in a DAO in order to overthrow it. Those who control the majority of votes have the ability to rig elections and direct the project in their favor. SBTs' openness and verifiability may help identify and keep out bad actors from the DAO, which will help prevent corruption and Sybil assaults.

SBTs in action

As of August 2022, SBTs only exist on paper. Glen Weyl, one of the co-authors who contributed to the original SBT whitepaper, believes there will be early SBT use cases by the end of 2022.
Additionally, third-party protocols will be able to use BAB tokens in addition to the Binance ecosystem to airdrop NFTs, stop bot activity, and support DAO governance voting, among other use cases.
SBTs are a popular subject in Web3. Theoretically, SBTs might let users build their own digital reputations and evaluate others' on the blockchain. If an SBT can serve as Web3's "identification card," that needs to be shown.