The Extraordinary Potential of Soulbound Tokens
Excited about the potential of Web3 but feel like it’s just one big money grab. Soulbound tokens have arrived to restore your faith in humanity
What are Soulbound Tokens?
Soulbound tokens are tokens that are bound to a Soul, i.e. the wallet that holds them. Unlike other tokens, they are not transferable. They can only be issued or revoked by other Souls who have a relationship with the wallet holder.
Types of relationships SBTs can represent include:
- Credentials
- Affiliations
- Attendance at Events
For example, clubs can issue SBTs to members. By issuing access via an SBT versus a trad NFT the club maintains exclusivity. By retaining discretion over who the SBTs are issued to and prohibiting reselling.
Further control can be exercised by adding conditions to SBTs when they are issued. For example, Alice could issue an SBT to Bob that says he is a member of her club only if he attends at least one meeting per month.
Self-Issuance
Any wallet holder can create and issue themselves SBTs. Which can be a useful tool to communicate professional credentials and affiliations like a certified blockchain-bound CV equivalent.
Of course, anyone can say anything they want about themselves. What makes it credible?
Attestations
Reputable authorities in the domains a soul claims expertise in or affiliation with would be able to certify their authenticity. Think a blockchain-based token when completing quests on rabbithole instead of a badge after completing a course on Coursera.
Why Not Just Issue a Trad-NFT
I love NFTs and own many myself. NFTs have limits.
Their purpose is exclusivity. Monetizing exclusivity requires the ability to transfer ownership to others which gives the NFT ecosystem its vitality.
But, if the goal is to establish and maintain a reputation over time to build economic relationships with. Transferability is a negative not a positive.
Why?
Trust is hard to establish and maintain in web3. Identities are often masked and transactions are conducted anonymously. SBTs are part of the solution for a wide range of applications web3 could enable if users can establish trust with each other.
- Uncollateralized lending
- Community wallet recovery
- Sybil-resistant governance
- Markets with shared rights
SBTs establish the trust required for these applications by verifying and communicating the social context for a wallet holder’s activities and preferences. Others can then quickly evaluate their history, reputation, and relationships.
Souldrops
Souldrops can be employed by DAOs to implement Sybil-resistant governance. A DAO could start by dropping SBTs to all of its members.
These SBTs could be set to unlock expanded governance rights for the holders that meet the requirements programmed into the SBTs. Through demonstrations of their credibility as actively engaged members of the DAO.
Restrictions could be implemented on access for newer members, by requiring a holding period before they are permitted to participate in the governance process. Gatekeeping the DAO from bots and other malicious actors who do not fulfill the requirements required to unlock governance privileges during the waiting period.
Soul Bound Currency
Economic research is clear. Spending money with a local merchant results in double the economic value recirculating locally versus the same spending with a national chain.
Forward-looking communities could use soulbound tokens to incentivize and reward local purchases. Perhaps by offering tax credits to residents based on dollars spent with local merchants.
In Conclusion
Soulbound tokens (SBTs) are a new type of token in the Web3 space that are bound to a specific wallet, or “Soul”. Unlike other tokens, they are not transferable and can only be issued or revoked by the token issuer who has a relationship with the wallet holder.
Types of relationships SBTs can represent include credentials, affiliations, and attendance at events.
SBTs can also be self-issued, which can be a useful tool to communicate professional credentials and affiliations. Reputable authorities in the domains a soul claims expertise in or affiliation with can be leveraged to certify their authenticity.
Other uses for SBTs include “Souldrops”. Which can be used by DAOs for their governance. DAOs could drop SBTs to all of their members for exmple. The SBTs would be programmed to unlock expanded governance rights for the holders that meet the requirements programmed into them.
Steve Miller
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