Soulbound tokens (SBTs) are non-transferable digital tokens that are permanently connected to a person’s online identity or “soul”. They are different from cryptocurrencies and NFTs that can be traded or sold – SBTs cannot be transferred to other people.
SBTs act like a resume or CV on the blockchain, displaying credentials, memberships, affiliations and other reputation markers that are verified publicly. This helps build trust and relationships in web3 spaces.
For example, a university could issue diploma SBTs to graduating students as proof of their degree. A company could give out SBT loyalty rewards to repeat customers. Individuals can also endorse others with SBTs to vouch for their credibility.
The main idea behind SBTs is to strengthen social connections and trust in decentralized networks like web3. Today web3 struggles with fake users and lack of reputation data. SBTs can help fix this by permanently tying credentials and social proof to real identities, while still protecting privacy.
This allows web3 communities to form around proven reputation, rather than just wealth or money-based status. SBTs make it much harder for bad actors to fake their background or impersonate others.
Of course, there are risks too. SBTs could be misused for discrimination or overreach by governments. The creators acknowledge the potential for misuse but still believe SBTs can build more ethical, trust-based systems overall.
The key advantage is that SBTs enable social connections and reputation in web3 without compromising on privacy. This unique trait of non-transferable credentials holds a lot of promise to realize the ideals of web3. However, it requires careful governance to prevent unintended consequences.
Why and why not?
SBTs have uses beyond just representing credentials and preventing impersonation. They could also serve as tickets for events, drops, and other community perks. For instance, a company might send reunion SBT tickets only to alumni from certain graduation years.
However, there are risks to be aware of too.
SBTs could potentially be misused by bad actors to identify and target members of marginalized groups. This is especially concerning when governments are involved. For example, people with certain SBTs could be denied access to places or services, have travel restricted, voting rights taken away, etc.
In their study, the authors of the whitepaper admit this dystopian possibility, saying that a database of SBTs may be used to “automate redlining of disfavored social groups or even target them for cyber or physical attack, enforce restrictive migration policies, or make predatory loans.”
What’s the point?
Trust between people is essential in any human or business interaction. But web3 struggles to build trust due to its strong privacy and anonymity.
As a result, web3 platforms paradoxically end up relying heavily on centralized web2 services to fill the trust gap.
For example, DAOs use web2 tools like Discord because they lack identity data to avoid fake users. NFT collectors turn to OpenSea to prove authenticity.
Soulbound tokens may be the solution web3 needs to bridge this trust deficiency, while retaining privacy.
Because SBTs can’t be transferred between people, they can establish reliable social identities anchored to real users.
This would let web3 protocols and users build trust without compromising on privacy ideals. SBTs can encode reputation in a decentralized way.