What are soulbound tokens (SBTs) and how do they work?


By creating another monetary system with extraordinary flexibility and innovation in lower than ten years, Web3 has astounded the globe. Financial and cryptographic primitives akin to smart contracts and consensus mechanisms have helped to create an open-source system to conduct and authorize monetary transactions.

Nevertheless, the decentralized finance (DeFi) ecosystem can’t assist easy contracts like an house lease as a result of it lacks a local Web3 identity. This text goals to reveal how even modest advances towards social id illustration with soulbound tokens may circumvent these constraints and reroute Web3 to an genuine, extra transformational path. 

What are soulbound tokens (SBTs)?

Initiatives and use instances specializing in social identities and communities somewhat than simply cash are required for blockchains to be on the core of collaborative and interesting ecosystems. To deal with this difficulty, Vitalik Buterin, Ethereum’s co-founder, together with Puja Ohlhaver, technique counsel at FlashBots, and E. Glen Weyl, political economist and social technologist, launched the idea of soulbound tokens in a paper titled “Decentralized Society: Discovering Web3’s Soul.”

Based on the authors, soulbound tokens present the idea for a decentralized society (DeSoc), which is a co-determined sociality during which communities and souls come collectively bottom-up as emergent options of each other to co-create plural community items and bits of intelligence at varied scales. A soulbound token is a publicly verifiable and non-transferable nonfungible token (NFT) that represents a person’s credentials, affiliations and commitments. So, what’s a non-transferable token?

Non-transferable tokens discuss with NFTs that may assist observe status and are added to addresses however can’t be offered. However what does “Souls” discuss with in soulbound NFTs? The wallets or accounts to which SBTs or non-transferable tokens are completely sure are known as Souls. As an illustration, a Soul can signify a person’s employment historical past, which may be self-certified just like data in a single’s curriculum vitae.  

However, when SBTs possessed by one Soul may be issued — or attested — by different Souls who’re counterparties (e.g., people or organizations) to those relationships, that’s when the mechanism’s true energy is revealed. As an illustration, the Ethereum Basis could be a Soul that awards SBTs to those that attended an Ethereum convention. Based on the paper, the idea of “plural community teams” refers to interactions and communications inside the networks and are probably the most vital drivers of financial development.

How do soulbound tokens work?

Soulbound tokens could help Web3 networks in utilizing non-transferable tokens as status indicators somewhat than relying upon money-centric frameworks to attain the identical. As an illustration, the lender presently verifies the borrower’s checking account balances, credit score scores and reimbursement historical past to supply an undercollateralized mortgage. 

Nevertheless, with SBTs representing one’s credentials, status will act as collateral to get an undercollateralized mortgage. Now, in case you recall the fundamental concept of NFTs, they signify property or property with some financial worth. However, confirm somebody’s status in a blockchain-based trustless system?

To know this idea and the working of SBTs within the Web3 house, let’s take an instance of a decentralized autonomous organization’s (DAO) voting system. Most DAO governance models assign voting energy based mostly on the variety of tokens held by a member. 

Nonetheless, DAOs issuing SBTs may prioritize status over tokens owned by a member. The status may be verified by way of customers’ interactions with the group. As an illustration, trophies earned from Kusama’s Governance Rewards program for each on-chain referendum member votes in can be utilized to signify their status. 

That mentioned, trophies function a visible illustration of a member’s on-chain exercise in Kusama and Polkadot DAOs, which can now be enough safety for an undercollateralized mortgage. Moreover, a reputation-based voting system could defend DAOs towards Sybil assaults.

A Sybil assault entails a number of dangerous actors taking management of nearly all of the governance tokens to redirect the challenge’s course of their favor. Soulbound tokens being publicly verifiable, can shield DAOs from falling into the entice of dangerous actors. As an illustration, souls holding respectable SBTs could also be assigned majority voting energy to guard the integrity of decentralized autonomous organizations.

Nevertheless, do soulbound tokens exist? There are a couple of examples of how soulbound tokens may be utilized within the Web3 world, which is described within the beneath part. However. when will soulbound tokens be out there? Binance Account Bound (BAB) would be the first SBT issued on the BNB chain by Binance. The BAB token won’t have any financial worth and can’t be transferred.

It’s going to function a digital verification resolution for Binance clients which have accomplished Know Your Buyer (KYC) necessities. Moreover, third-party protocols can make the most of BAB SBTs to facilitate DAO governance voting and airdrop, amongst different use instances. 

How can soulbound tokens be used?

In on a regular basis life, there are lots of use instances of SBTs in Web3, as defined beneath:

NFT possession

Artists can do away with dishonest people promoting NFT collections beneath the guise of well-known artists by linking soulbound tokens to their inventive profile. SBTs would permit consumers to hint the social provenance, whereas blockchain inclusion permits them to trace when a selected work was created. 

As an illustration, a tradeable NFT may very well be issued by an artist from their Soul to assist consumers acknowledge an artist’s work by the variety of soulbound tokens it comprises, establishing the legitimacy of the nonfungible token. Consequently, Souls would develop a publicly-verified, on-chain methodology for staking and develop a status across the provenance and rarity of an merchandise.

Job vacancies

Soulbound tokens representing a candidate’s instructional credentials like diploma {and professional} certificates and former work historical past can be utilized as proof of ability to fulfill the human useful resource wants of a corporation.


A person’s Web3 exercise may be tracked utilizing SBTs, which may be transformed into non-transferable status tokens inside sport avatars that may solely be leveled up on this methodology. This implies being a very good Web3 citizen: You may stage up as an alternative of enjoying the sport, giving your avatar non-transferable expertise and expertise.

Verification of debtors’ credit score historical past

Conventional credit score stories can also be represented by SBTs, giving lenders entry to a borrower’s complete credit score profile. And, the SBT could also be changed by fee documentation or deleted as soon as the mortgage has been repaid. Consequently, individuals can’t cover their ongoing obligations.

Various use cases of soulbound tokens


Web3 has been primarily depending on token gross sales or airdrops to entice new communities, however each strategies present mediocre outcomes. Instead, Souldrops may be issued utilizing SBTs, as an illustration, to builders with 5 out of the final 10 convention attendance soulbound tokens serving as a proof of attendance protocol (POAP). Folks can use POAPs, a particular NFT, to reveal that they attended a reside or recorded occasion.

What are the advantages of soulbound tokens?

One of many benefits of utilizing soulbound tokens for credential verification functions is that since data is completely replicated on the blockchain, nobody can falsify it. Furthermore, any awards and certificates earned by a person may be publicly verifiable by way of SBTs. Moreover, since authenticity can’t be bought by means of soulbound tokens, it fosters confidence amongst tokenholders and most of the people.

Moreover, protocols will be capable of verify debtors’ credit score histories and consider their credit score scores to find out how a lot they will borrow, due to soulbound NFTs. Furthermore, SBTs prohibit Web3 initiatives from turning into a money bag by making digital representations non-tradable. That mentioned, a person can’t purchase NFTs; as an alternative, they should put effort into incomes them.

Are there any dangers related to soulbound tokens?

Together with profitable benefits, soulbound tokens have some cons, too. For instance, the present pockets combine will not be best for SBTs because of the lack of group restoration strategies. Consequently, group restoration wallets want all kinds of soulbound tokens dispersed all through a number of communities to get well misplaced Souls.

An answer to the above lies in a group restoration technique, during which a Soul’s non-public keys may be obtained if consent by a professional majority of one of many communities (that the Soul belongs to) is acquired..

Nevertheless, some individuals or organizations may acknowledge pursuits that battle with their very own ideology, which may theoretically result in harassment, violence and even trolling, indicating a privateness concern as a person’s private data is uncovered.

Theoretically, SBT-based credit score methods may result in dystopian ecosystems (the place freedom and impartial thought is restricted) like China’s social credit system, the place particular social groupings are robotically excluded owing to the presence of particular soulbound tokens.

SBTs vs. NFTs

Nonfungible tokens may be purchased and offered by way of NFT marketplaces, whereas soulbound tokens are non-transferable NFTs as a result of they’re sure to the Soul. A abstract of the variations between SBTs and NFTs is listed within the desk beneath:

SBTs vs. NFTs

Though NFTs can’t be altered or duplicated, they’re simply transferable, which may very well be an issue if they’re utilized by somebody with entry authorization with out first being granted to a holder. Due to this fact, soulbound tokens are tied to a specific Soul handle and may be verified by way of on-chain credentials, limiting anybody from modifying them.

The way forward for soulbound tokens

The idea of soulbound tokens, regardless of being fascinating, is sort of new and can’t exchange the NFT ecosystem. As an alternative, it may well serve instead approach of id management, permitting DAOs, as an illustration, to higher interact with their group members.

Nevertheless, it stays to be seen if each SBTs and NFTs will co-exist till DeSoc turns into a actuality within the Web3 house or if SBTs alone can function digital id tokens within the decentralized world.