What Are Soulbound Tokens (SBT)?

In brief
Soulbound Token (SBT) is a digital identity token that represents the characteristics, features, and achievements that make up a person or entity. SBTs are issued by “Souls,” which represent blockchain accounts or wallets, and are non-transferable.
IntroduceSoulbound Tokens (SBT) is a concept proposed in May 2022 by Ethereum co-founder Vitalik Buterin, lawyer Puja Ohlhaver, and E. Glen Weyl, an economist and social technologist.
This white paper, titled “Decentralized Society: Finding Web3's Soul,” lays out the foundations of a completely decentralized, user-governed society (DeSoc). and how Soulbound (SBT) tokens can function similarly to the logins we use in everyday life.
What are SBTs?Soulbound tokens (SBT) are non-transferable tokens that represent a person's identity using blockchain technology. Identity can include medical records, work history, and any type of information that makes up an individual or entity. The wallet that stores or issues these records is called “Soul”.
People can have multiple wallets (or Souls) that represent different parts of their lives. For example, someone might have a “Credential Soul” for their work history and a “Medical Soul” for their health records. Souls and SBTs will enable people to build digital reputations on Web3, verifiable based on their past actions and experiences.
On the other hand, Soul can represent an entity that allocates SBTs. For example, companies can be Souls, granting SBT to each employee. A digital country club can issue SBT to verify membership.
The logic behind soulbound originates from the famous online game World of Warcraft.
Players cannot sell or transfer soul items. Once picked up, items with souls will forever be "bound" to the player's "soul".
Now, imagine this idea but applied to non-fungible tokens (NFTs). Today, most NFTs are considered certificates of ownership for digital works of art or collectibles, such as the Bored Ape Yacht Club. People will buy, trade or flaunt NFTs as a symbol of status and wealth.
The purpose of SBT is to turn the NFT concept into something beyond money that humans have bragging rights to, a token that is both unique and non-transferable. While NFTs represent assets and real estate, an SBT represents the reputation of an individual or organization. And unlike NFTs, SBTs have no monetary value and cannot be traded once issued to someone's wallet.
How can SBTs be used?There are a wide range of potential use cases for SBTs. Below are some examples that can be used in everyday life.
1. Academic History - When people graduate from college, they receive a certificate proving they have completed required courses. The university can be a Soul issuing SBT, and students will be Souls upon receipt. SBT will store students' credentials, proving they have relevant qualifications and are members of the university. Simply put, SBT will act as proof of attendance.
2. Job application - In theory, job applicants can submit all of their previous work history and professional certifications using official SBTs issued by previous companies and organizations. The SBTs will act as proof of skill certification.
3. Health Records - Switching doctors or healthcare providers can be expedited by using an SBT that maintains a person's medical records. In theory, SBT would replace the process of filling out paperwork, verifying medical history, and communicating back and forth with someone over the phone.
How do SBTs work in Web3?Trust is one of the main challenges affecting the Web3 industry. How can you trust a person's reputation in a system designed to require no trust? Let's use money lending as an example. Similar to traditional bank credit scores, SBTs can track users' DeFi loan history as well as other metrics to determine their risk profile.
SBT is also a proposed alternative to decentralized autonomous organization (DAO) voting. Instead of the current governance model, which is based on the number of tokens a member holds, DAOs could issue SBTs, which assign voting rights based on user interactions with the community. This model will prioritize voting rights for dedicated users with the strongest reputations.
Besides creating a reputation-based voting system, SBTs can improve the integrity of DAO voting - specifically protecting against Sybil attacks - one of the major threats for the DAO governance model at the present time.
In a Sybil attack, an individual or group of bad actors overthrows the DAO by purchasing the majority of governance tokens. Those with majority voting rights can manipulate voting proposals and steer the project in their favor. The public and verifiable nature of SBT can help detect and prevent bad actors from infiltrating DAOs, while also preventing corruption and Sybil attacks from occurring.
What are examples of SBT in action?As of August 2022, SBTs still exist only on paper. Glen Weyl, one of the co-authors who contributed to the original SBT whitepaper, believes that there will be early SBT use cases by the end of 2022.
Binance also recently announced its own SBT called Binance Account Bound (BAB). The BAB token is non-transferable, has no monetary value, and is the first SBT issued on BNB Chain. BAB's goal is to solve identity verification problems in Web3, serving as a digital verification tool for Binance users who have completed KYC.
Outside of the Binance ecosystem, third-party protocols will be able to use the BAB token to airdrop NFTs, prevent bot activity, and facilitate DAO governance voting and other use cases.
summarySBTs have become a hot topic in Web3. In theory, SBT could allow people to establish their own digital reputation and evaluate the reputation of others on the blockchain. However, it still takes time to see whether SBT can act as an "identity card" on Web 3.