What are Soul-Bound Tokens (SBT)?

TL;DR

Soulbound Tokens (SBT) are digital identity tokens that represent the traits, characteristics, and achievements that make up a person or entity. SBT are issued by “Souls,” which represent blockchain accounts or wallets, and cannot be transferred.

Introduction

Soulbound Tokens (SBT) is a concept proposed in May 2022 by Ethereum co-founder Vitalik Buterin, lawyer Puja Ohlhaver, and E. Glen Weyl, an economist and social technologist.

The whitepaper, titled “Decentralized Society: Finding the Soul of Web3,” lays out the foundation for a fully decentralized society (DeSoc) governed by its users and how Soulbound Tokens (SBT) can function as the credentials we use in everyday life.

What are SBTs?

Soulbound Tokens (SBT) are non-transferable tokens that represent a person's identity using blockchain technology. This could include medical records, employment history, and any type of information that constitutes a person or entity. The wallets that hold or issue these records are called "Souls."

People can have multiple wallets (or Souls) that represent different parts of their lives. For example, someone could have a “Credentials Soul” for their employment history and a “Medical Soul” for their health records. Souls and SBT would allow people to build a verifiable digital Web3 reputation based on their past actions and experiences.

On the other hand, Souls can represent an entity that allocates SBT. For example, companies can be Souls and issue SBT to each employee. A digital country club could issue SBT to verify membership status.

The logic behind Soulbound originates from the popular online game World of Warcraft.

Players cannot sell or transfer soulbound items. Once collected, soulbound items become forever "bound" to the player's "soul."

Now, imagine this idea but applied to non-fungible tokens (NFTs). Today, most NFTs are certificates of ownership of digital art or collectibles, like Bored Ape Yacht Club. People will buy, trade, or display NFTs as a symbol of status and wealth.

SBTs aim to transform the NFT concept into something beyond money and bragging rights — a unique, non-transferable token. While NFTs represent assets and property, an SBT represents the reputation of a person or entity. And unlike an NFT, SBTs have no monetary value and cannot be traded once issued to someone’s wallet.

How can SBTs be used?

SBTs have a wide range of potential use cases. Below are some examples that could prove useful in everyday life.

1. Educational history: When people graduate from university, they receive a certificate attesting to the completion of the required courses. The university could be an Alma that issues the SBTs, and the students would be Almas on the receiving end. The SBT would store the student’s credentials, proving that they possess the relevant qualifications and are a member of the university. Simply put, the SBT would function as proof of attendance.

2. Job applications: In theory, job applicants could submit all their previous work history and professional certificates using official SBTs issued by previous companies and institutions. SBTs would function as proof of skill certificates.

3. Medical Records: Changing doctors or healthcare providers could be expedited by using an SBT containing a person's medical records. Hypothetically, the SBT would replace the often slow process of filling out paperwork, checking your medical history, and speaking to someone on the phone.

How do SBTs work in Web3?

Trust is one of the main challenges affecting the Web3 industry. How can you trust someone’s reputation in a system designed to be trustless? Let’s use money lending as an example. Much like traditional bank credit scores, SBTs could track a user’s DeFi lending history as well as other metrics that determine their risk profile.

SBTs are also a proposed alternative to voting for decentralized autonomous organizations (DAOs). Instead of the current governance model, which is based on the number of tokens a member owns, DAOs could issue SBTs that allocate voting power based on users’ interactions with the community. This model would prioritize voting power for the most dedicated users with a strong reputation.

In addition to creating a reputation-based voting system, SBTs can potentially improve the integrity of DAO voting, i.e. defending against Sybil attacks, one of the biggest threats to the current DAO governance model.

During a Sybil attack, an individual or group of bad actors overthrow a DAO by purchasing the majority of governance tokens. Those with majority voting power can manipulate voting proposals and steer the direction of the project in their favor. The public and verifiable nature of SBTs could help detect and prevent bad actors from entering the DAO, and in turn deter corruption and Sybil attacks.

What are examples of SBT 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 first use cases of SBT by the end of 2022.

Binance also recently announced its own SBT called Binance Account Bound (BAB). The BAB token is non-transferable, has no monetary value, and is the first SBT issued on the BNB chain. BAB aims to address identity verification issues in Web3, serving as a digital verification tool for Binance users who have completed KYC.

In addition to the Binance ecosystem, third-party protocols will be able to use BAB tokens to airdrop NFTs, prevent bot activity, and facilitate DAO governance voting, among other use cases.

Final Thoughts

SBTs have become a hot topic in Web3. In theory, SBTs could allow people to establish their own digital reputation and assess someone else’s on the blockchain. It remains to be seen if an SBT can function as Web3’s version of the “identity card.”