What is a Soul Bound Token?👻

Defiant journalist Jason Levin along with Vitalik Buterin, the father of Ethereum, published a paper termed “Decentralized Society: Finding Web 3’s Soul”. In this paper, Buterin focused on SBTs, or Soul Bound Tokens talked about its use-cases and how it could be the future of Ethereum.

Essentially, Soul Bound Tokens are a kind of NFTs that are non-transferable in nature. This means that once received in a wallet, these tokens cannot be transferred to any other person ever. According to a tweet by Jason, “Once you receive an SBT, you hold it in a Soul wallet forever.” The digital address that holds the Soul Bound tokens is called “Soul”.

In case the SBTs is lost or the owner of these token goes missing, there is a recovery mechanism that could make the tokens available to the issuer, explained the paper. For this, the creator accumulates a set of “guardians” and allocates them the power to change the key of the soul wallet. However, recovery of the Soul is only possible if the guardian community (indiviuals, institutions, or multiple wallet addresses) vote collectively for it.

Expected to be available by the end of 2022, Vitalik thinks that SBTs will expand its territories to mainstream adoption by 2024. But if the tokens are non-transferable in nature, what is the point of even holding them?

Use Cases of SBTs~

Soulbound tokens, or SBTs, are non-transferable and publicly accessible tokens that are tied to the soul address. Soul Bound Tokens assist in the creation of social identity using tokens in order to enable services that are now unavailable in the Web 3.0 and DeFi ecosystem, such as undercollateralized loans and simple contracts. There are a bunch of utilities that the SBTs hold within.

The first use that can be scaled up is the utilization of SBTs in certification and documentation. In the case of educational institutions, say if a university wishes to distribute degrees to its graduate students as standard NFTs, it can be sold further by the students due to the underlying technology of NFTs that allows transferability. However, if the degree is provided as an SBT, it would stay forever in the soul wallet of the student and would not be sold/transferred.

Another use case that the SBTs have is proof of presence. SBTs can be distributed as tickets to attendees of an event (conference, seminar, or special occasion) by the organizers.

Because SBTs cannot be transferred forward, the organizers are aided in keeping track of the invitees on the one hand, and it serves as proof of attendance by the invitees on the other.

Last but not least, SBTs can be used as airdrops within various blockchain networks’ DAO structures. Participants can be assigned to the event via “Souldrop” based on the frequency of their participation in previous proposal events within the network.

Closing thoughts~

The vision behind the SBT technology is to provide a social identity that is somewhere missing in the current Web 3.0 scenario. The integration of SBTs in the current ecosystem could possibly curate multiple interactions within the DeFi ecosystem, unlocking financial services like uncollateralized loans and lease agreements. As per Vitalik’s confidence in the tech, it seems like SBTs may drive the hype among DeFi and NFT evangelists by the end of 2022.