Soulbound tokens are very different to the tokens we are used to, offering dozens of new possibilities for the regular users. Let’s cover everything that stands out in this article. 🙌
What is a soulbound token?
A soulbound token is a token pegged to a certain user or wallet address lacking the ability to transfer it to others or even sell it. The token can also act as a confirmation for a compliance with certain conditions, act as proof of membership in the community, or even certify some unique status of the user, being a title or a health condition.
Even though such tokens are pretty much against all the base blockchain principles they are still highly useful (And let’s be honest, the technology and ideology of blockchain are evolving with insane speeds).
The SBT idea was first introduced by the founder of Ethereum, Vitalik Buterin, who described it in his blog in January 2022. Buterin was very fascinated by the practice of releasing rare artifacts, forever possessed by just one player in World of Warcraft online game. The way he saw that being executed in the blockchain was using non-fungible tokens: issuing an NFT, that can only be held on a specific blockchain address, being permanently tied to it. ⛓️
Buterin soon expanded his SBT idea in a paper titled as “Decentralized Society: Finding Web3’s Soul”, which was published in May 2022 and written in cooperation with Glenn Wei - an economist and social technologist as well lawyer Pooja Olhaiver. ⚖️
The paper described a model of a new decentralized digital society, including an analogue of the Chinese “social rating” and “digital karma” with all that being based on Web3 technologies, blockchain and non-transferable tokens. 📄
In the same publication, Buterin had also cited the POAP project, releasing exclusive NFTs thematic events’ participants. One of those giveaways was hosted by Adidas, who released a collection of POAP tokens in November 2021. 🍂
Subsequently, the company used those tokens as the BAYC, GMoney and PunksComic collaboration NFT collection access keys. However, Buterin was highly concerned about the POAP’s resale possibility. 🤔
In September 2022, the first BNB Chain network non-transferrable token, named Binance Account Bound was released. Any user verified on the platform via KYC has the ability to create a BAB with the SBT being bound to the address acting as a confirmation certificate accepted by third-party applications afterwards. The owner of the token is also able to destroy and reissue it after 72 hours. 👍
Areas of use
Buterin, Wei and Olhaiver’s work shows us multiple use scenarios.
Social rating and lending
Considering the current regulation trend, in the near future it will probably only be possible to get a cash or any other type of loan after achieving a certain social rating and reputation status. All that can be numerically recorded in SBT, serving as an indestructible and a doubtless way of proving the borrower’s credit history. 🏦
DAO and communities
SBT can be used as a very important part of the decentralized autonomous organizations (DAOs) security mechanism. A case of using SBT tokens has already been proposed in the Optimism L2 ethereum solution. According to the announcement, non-transferable tokens could serve as a way to access separated “chambers” of the Optimism DAO, each with its own functions and conditions. 🤔
Airdrops and Marketing
Thanks to soulbound tokens, it is now possible to fine-tune airdrops without bots and other miner programmes receiving tokens. In addition, SBT can be used for other marketing activities - Adidas using soulbound tokens as a “VIP ticket”, for example. 🎫
Digital art and content creators can create SBTs as a certificate of authorship. This method of application can also be applied in many other cases, which require identity confirmation - an education diploma or real estate ownership certificate. That can also work for ID confirmation with the user verifying their identity just once in a single application, issuing SBT as proof and using it in every other application that supports this verification method. 🆔
Even though the technology is still a bit raw, the perspectives of use are insane with cases covering most of the industry sectors - Buterin inventing miracles, nonetheless. ✨
Stay tuned 📻