What are Soulbound Tokens? Building Blocks of a Web3 Decentralized Society

With Web3 tending towards hyper-financialization and commodification, space leaders have proposed an alternative model built on emerging networks by bottom-up communities with rich social identities.

Soulbound Tokens, offered by Ethereum creator Vitalik Buterin, would be a cornerstone of this Decentralized Society, or DeSoc. These non-transferable tokens represent credentials and affiliations within DeSoc, and are tied to Souls, a type of address that establishes provenance.

Introduction

“Soul” is not a word commonly associated with the highly technical and often financially driven space of blockchain and crypto. To most, the term “Soulbound Token” in a crypto context seems unintuitive, ironic, or just plain weird.

Nonetheless, Soulbound Tokens, and what they inspire, should shape the way forward for Web3 in a significant way. These are the proposed building blocks that could reshape our relationships with each other, create and manage communities, communicate our reputation, and more. What is just an idea today could one day become part of our Web3 lives and beyond.

In this article, we explore what Soulbound tokens are, the Web3 context they fit into, how they work, example use cases, and what their future might hold.

What are Soulbound Tokens?

Soulbound Tokens (SBT) were offers in May 2022 by economist and social technologist E. Glen Weyl, attorney Puja Ohlhaver and Ethereum designer Vitalik Buterin. SBTs are a primitive or fundamental building block in an emerging world. Web3 trend known as the decentralized society.

DeSoc sits at the intersection of politics and markets and, like the broader Web3 context in which it is situated, is based on principles of composability, bottom-up community, cooperation and emergent networks that are held and governed by network users. It aims to increase the trajectory of Web3 towards hyper-financialization to something more inclusive, democratic and decentralized.

SBTs are a core feature of DeSoc. Similar to a resume or medical records in the non-Web3 world, SBTs are non-transferable tokens that represent “commitments, referrals, and affiliations” that make up social relationships on Web3 networks.. In other words, they are symbolic representations of the myriad traits, characteristics, and accomplishments that make up a person or entity.

Importantly, souls can issue and attest SBTs to other souls; so, for example, a college (represented by a soul) could issue an SBT certifying that a course has been taken to a student’s soul.

How do Soulbound tokens work?

At the time of publication, no formal Soulbound Token specification exists at the time of writing; they are still only an idea. That said, some mechanisms have already been described.

The most distinctive feature of SBTs is non-transferability. Unlike today’s most popular token standards, i.e. fungible ERC-20 tokens like ETH and ERC-721 NFT like Bored Ape Yacht Club—SBTs are not designed to have a market value and cannot be transferred to another wallet.

In a DeSoc context, SBTs are issued and held in accounts known as “Souls”. Souls are basically wallets that hold SBTs and are used to establish provenance (where something came from) and reputation. Souls can be associated with individuals, organizations or other entities. Above all, souls are not intended to have a 1:1 representation for humans. That is, a human can have multiple souls in DeSoc.

For example, your high school might have a soul that graduates as SBTs to its graduates, all of whom have souls that hold their respective SBT degrees. You receive this SBT in your Soul Credentials, where you also hold SBTs for your Girls Scouts badges and National Honors Society SBTs. This identifying soul, however, is separate from your identifying soul, which holds your driver’s license and passport.

SBTs themselves are merely descriptive and representative. Their power and usefulness, in part, comes from how the SBTs held within souls interact to form emergent communities based on verified affiliations, commitments, and referrals.

What’s so special about Soulbound Tokens?

The notion of unfunded and/or non-transferable tokens is not a new concept. In fact, successful projects today are based on similar principles. For instance, POAP proves participation in the event with badges that have no financial value. Proof of Humanity uses non-transferability to associate profiles with a unique human IRL.

What makes Soulbound Tokens unique is how they fit into a larger decentralized society context. As acknowledged by the authors of “Decentralized Society: Finding the Soul of Web3” paper in which SBTs are offered, the concept is still nascent and underdeveloped. Nevertheless, SBTs are the atomic building blocks with which democratic, composable, and decentralized networks and Web3 societies are built.

What are the example use cases for Soulbound Tokens?

The potential use cases for SBTs are limited only by our ability to imagine, design and implement them. Nevertheless, here are some promising use cases:

• 🏥 Management of medical records – Changing doctors or insurers can be a frustrating experience. It requires spending hours on the phone asking for medical history, verifying your identity, and trying to remember if you used your mother’s maiden name or the street you grew up on as a security question. SBTs would make this tedious process obsolete with something like a medical soul that contains all of your medical records.
• 💵 Under-collateralized chain loans – Traditional financial markets are based on credit. To date, crypto projects have struggled to solve this problem on a large scale due to technical limitations around proving an individual or institution’s ability to repay a loan. SBTs could solve this problem with a demonstrable reputation.
• 🛡️ Protection against sybil DAO attacks – One of the greatest threats facing decentralized autonomous organizations (CAD) is a sibilant attack, in which an individual or a coordinated group of individuals accumulates a critical mass of governance tokens and manipulate the voting proposition in their favor. By leveraging SBTs, DAOs can have built-in mechanisms that mitigate these risks in several ways, such as checking the correlation between SBTs held by souls supporting a particular vote and updating accordingly.

Other potential use cases for Soulbound tokens can be found in “Decentralized Society: Finding Web3’s Soul”. paper.

The Future of Soulbound Tokens

In their current “Soulbound” form, SBTs are only a few months old (at the time of writing). Ideas, use cases, and implementations still need to be discussed, designed, and fleshed out. In this regard, the future of SBTs is a blank slate.

In their purest and fullest expression and manifestation, however, Soulbound Tokens are fast becoming a fundamental part of the decentralized society movement, in which communities emerge around shared networks and assets that are owned and managed by the souls who use them.

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