Soulbound Tokens ($SBT) Review

By Notum DeFi App | Notum DeFi App | 28 Jun 2022

In May 2022, the Ethereum founder Vitalik Buterin and three co-authors published a manifesto entitled “Decentralized Society: Finding Web3’s Soul”. In this paper, the authors presented their vision for the further development of Web3, namely, the building of a Decentralized Society based on a new type of asset — SoulBound Tokens.


Over the past ten years, we have witnessed the birth of a new economy that gave society previously inaccessible flexibility and freedom. Finance has been decentralized, and the DAO concept has allowed users to become full participants in decision-making processes. Nevertheless, as the authors of the paper note, we are still very far from perfection. 

To date, users are still under intense pressure from centralized structures. For example, although NFT technology is claimed to have given artists freedom and inviolable ownership, artists are still forced to rely on centralized marketplaces and social networks to promote, sell, and confirm the origin of their works. In addition, DAOs are often subject to plutocracy, as “whales” have more voting power and the ability to tilt the vote in the “right” direction. And users are forced to rely on centralized custodial structures to conduct crypto transactions. These and other reasons served as a driver for the design of a new type of tokens — SoulBound Tokens (SBTs), which will be able to remove limitations and contribute to the formation of a Decentralized Society (DeSoc). 

What Are SoulBound Tokens?

Perhaps the word “soul” sounds ironic and frivolous in the context of blockchain, cryptocurrencies, and finance in general, but this name perfectly reflects their meaning. By the way, the term “soulbound” was not taken from the air. This concept has been presented for a long time. In World of Warcraft, soulbound items denote something valuable and powerful. Users receive soulbound items for completing the most challenging quests, defeating the strongest bosses, and so on. It is noteworthy that as soon as a player gets a soulbound item, it becomes a kind of certificate confirming the completion of a particular task. Thanks to such an item, users receive not only some legendary in-game item but also earn a reputation.

Most importantly, soulbound items cannot be sold or exchanged. It was this concept that inspired the authors of the paper described. According to the authors of the manifesto, SBT will work similarly. Only instead of the player’s profile, they will be linked to the user’s crypto wallet.

SBTs are non-transferable tokens representing the “obligations, identity, and affiliation” that make up social relationships in Web3 networks. In other words, they are paramilitary representations of the many traits, features, and achievements that make up a person or entity. Soulbound tokens, proposed by Vitalik Buterin, will become an essential building block for this decentralized society or DeSoc. These non-transferable tokens represent credentials and are associated with Souls, the type of address that establishes the origin.

It is important to note that Souls can issue and confirm SBT to other Souls; for example, a college (represented by one Soul) can give an SBT certifying that the course was completed for the Soul of the student.

The first working mechanisms of DeSoc should appear at the end of 2022. However, many analysts predict their heyday in 2024.

Why Do We Need SoulBound Tokens?

Soulbound tokens will help create a digital reputation for the user. For example, the user can get SBT for attending a conference, taking courses, helping another user, participating in the DAO, working in the company, and other actions. The Souls that issue SBTs can be any companies, structures, or even individuals. To give a simple example, in a Decentralized Society, your university acts as a Soul that issues soulbond tokens to graduates.

By the way, the possibility of issuing an NFT as a certificate of education is no longer new. However, the problem is that NFT, like other cryptocurrencies, can be resold. That is, graduates can sell their NFT certificate to another student. In the case of SBT, this cannot happen.

Thus, the user’s Soul will begin to form its history and reputation. It will be possible to see where the users studied, what events they participated in, who they helped and where they worked. It is important to note that Souls are not meant to represent people one-to-one. That is, there is no protocol that would impose a restriction of “one Soul per person”.  

SBTs themselves are simply descriptive and representative. Their strength and usefulness stem partly from how the SBTs contained in Souls interact with each other, forming communities based on proven affiliation, commitment, and authority.

What if I Lose My “Soul”?

On this issue, the paper’s authors provided a reasonably extensive answer. They refer to an already published article titled “Why we need wide adoption of social recovery wallets”. This article discusses and analyzes the currently used methods of storing cryptocurrencies, such as paper wallets, hardware wallets, or multi-sig wallets. The authors point out the difficulties and risks associated with such types of storage and highlight the advantages and disadvantages of such methods. Moreover, the article presents the vision of “social recovery wallets”, which are the best option for soulbound tokens. In short, in case of loss of private keys, the user will be able to restore access to the account through the “guards”. The guards can be organizations, companies, friends, or relatives. They can easily ask different questions to make sure it’s you.

How to Use SBTs in Real Life?

In general, the potential use of Souls and SBTs is limited only by our imagination and the possibilities of implementation. However, in their manifesto, the authors provided several promising use cases, for example:

With the help of SBT, the authors hope to reduce users’ dependence on centralized services such as Twitter and OpenSea. For example, for artists to release an NFT collection, they must use centralized marketplaces and write about it on their social networks to prove ownership and rights. And with the advent of SBTs, there will be no such need because the entire reputation of the artist will already be tied to the wallet. And the community will be sure he did not buy them from another artist because SBT cannot be resold.

On-chain-lending with insufficient collateral. Traditional financial markets are built on lending and un-collateralized lending. Unfortunately, to date, crypto projects cannot provide the same conditions. With SBT, we can solve this problem with a provable reputation. That is, SBTs that represent certificates of training, work history, and rental contacts can be a basis for taking un-collateralized loans.

Protection DAO against Sybil attacks. One of the biggest threats decentralized autonomous organizations (DAO) faces is the Sybil attack, in which an individual or a coordinated group of individuals accumulates many tokens and receives 51% of the voting power. Using SBT, DAOs can have built-in mechanisms that reduce such risks in several ways. For example, assigning more voting power to those Souls with more reputable SBTs (licenses, certificates, and so on). Or the release of “proof-of-personhood” SBTs.


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