Even with all of the NFT hype, there are some things in life that cannot be transferred. Birth certificates, Aadhaar or PAN numbers, college degrees, and so on. But what if these important documents could be represented by NFTs while remaining permanently attached to you? This is where the Soulbound Tokens come in handy.
Soulbound tokens are non-transferable and individual in nature, storing relevant data such as educational credentials, employment history, club memberships, and so on.
Consider it as a traditional wallet that holds a driver’s license, a library card, and a membership card to a local sporting club, except that this information will be stored in a digital wallet in the form of SBTs. In this article, we would be looking at what the Soulbound Token is, how it works, and its use cases
What Is Soulbound Token(SBT)?
Soulbound tokens (SBT) are non-transferable, publicly verifiable digital tokens that can serve as a type of Resume for web3 users, displaying a person’s memberships, credentials, and affiliations.
Buterin said in the bulletin, that SBTs are also non-fungible tokens (NFTs) that a person can earn based in part on their job and education history. However, they are non-transferable, unlike the regular NFTs. SBTs would represent a person’s reputation and accomplishments, a kind of “extended resume”.
We are accustomed to ERC-20 tokens or NFTs that can be transferred and are used by a large number of people. These tokens can be bought and sold, marketplaces created, and functionalities assigned to them. SBTs, on the other hand, is linked to a user account or wallet. As a result, they are simply associated with a person, company, or project.
How Soulbound Work
SBTs are issued by and held in accounts known as “Souls” in a Decentralized Society context. Souls are wallets that contain SBTs and are used to establish authenticity and reputation. Individuals, organizations, and other entities can all have souls.
Importantly, Souls are not meant to have a human representation. That is, in a Decentralized Society, a human can have multiple Souls.
Soulbound tokens would function as an extended curriculum vitae, issued by other wallets attesting to these social relationships. Only SBT creators can send them to other addresses, which are referred to as soul addresses.
Once transferred to Soul, these tokens will remain with that wallet address for the rest of their lives.
The idea is to intensify people’s social identities by personalizing them with one-of-a-kind, non-transferable badges. In theory, the tokens could aid in the resolution of some of the issues plaguing decentralized finance, such as fraud and theft.
Soulbound Token Use Cases
There are diverse ways in which the Soulbound Tokens will be of importance such as;
Undercollateralized on-chain lending
Lending has proven to be extremely beneficial in the cryptocurrency market over the last few years. ERC-20 tokens have played an important role in lending. However, with Soulbound tokens, things could get even better. Uncollateralized lending, as explained by the paper’s authors, is one of the largest financial values built directly on reputation.
Traditional financial systems rely on centralized scoring systems to provide users with uncollateralized loans. However, SBTs have the potential to change the crypto industry in the future. SBTs could provide a new censorship-resistant alternative to centralized financial institutions’ social credit systems.
SBTs could, for example, represent educational credentials, work history, and rental contracts. This could be one of the best ways to demonstrate potential creditworthiness.
Airdrops have proven to be one of the most effective methods for projects to distribute tokens to the market. Airdrops could become more efficient over time as a result of Soulbound tokens.
Because Souls can represent individuals and reflect unique traits as they acquire SBTs, it is possible to develop new types of airdrops based on SBT computations. For example, projects may be able to airdrop tokens to specific Souls who meet three of the five requirements represented by SBTs.
It is possible that SBTs given to Souls through airdrops will vest into transferable tokens later on. The functionalities and possibilities offered by SBTs seem to be large, even for projects that want to engage with the community with airdrops.
Soulbound tokens can be linked to NFT artists’ collections, ensuring that NFT collectors know which tokens belong to them. By doing so, artists can rid the NFT space of bad actors who sell random NFT collections in the name of famous artists.
Artists could go one step further and issue a linked SBT from their Soul. By attesting to an SBT’s membership in a “collection,” they can vouch for whatever scarcity limits the artist wishes to impose.
In a nutshell, SBTs can assist NFT creators and artists in establishing their reputations within the NFT and digital art communities.
Sybil Resistance Attack
One of the biggest threats faced by Decentralized Autonomous Organizations ( is a Sybil attack, wherein an individual or coordinated group of individuals accumulate a critical mass of governance tokens and manipulate proposal voting in their favor. )
Leveraging SBTs, DAOs can have built-in mechanisms that mitigate such risks in a number of ways such as checking for correlation between SBTs held by Souls who support a particular vote and are discounted accordingly.
Soulbound Token Pros and Cons
- These tokens could be used to offer better services to the crypto ecosystem
- SBTs could enhance lending, art expression, and airdrops, among other things
- New solutions could be offered by developers and projects
- Soulbound tokens offer new ways for users to become parts of the crypto ecosystem
- SBTs are enhanced NFTs linked to specific “Souls” or accounts
- A new ecosystem could flourish thanks to SBTs
- SBTs might not take off if they are not properly developed
- As every single type of token and programmable asset, they could be subject to bugs
- They are non-transferable (this can also be considered a positive thing)
- It might be difficult for users to learn a new term in the crypto industry
When will SBTs be available?
According to Vitalik Buterin, Soulbound Tokens (SBTs) could be launched by the end of this year as an initial rollout, the SBTs will be available for early use on the Ethereum blockchain by the end of this year. This is all part of his larger plan to create a “decentralized society” by 2024.
What happens if we lose SBTs?
SBTs will be kept in Soul wallets. So, if you misplace the key to your soul address, you can easily recover it. If you misplace the key, a Soul will need the permission of a Soul community member to recover it.
Users can select a group of “guardians” and grant them the ability to change the keys to their soul wallet. These guardians could be close friends, family members, reputable organizations, and so on. These guardians could authenticate the owner of the soul address via conversation, face-to-face meetings, and a variety of other methods.
Soulbound Tokens, as proposed by Ethereum co-creator Vitalik Buterin, would be a critical component of this Decentralized Society. These non-transferable tokens are linked to Souls, a type of address that establishes provenance and represents credentials and affiliations within the Decentralized Society. Would Soulboind Tokens be the next hit on the blockchain? let’s wait to find out.