In this Beginner Guide, We’ll deep dive into SBTs(SOUL bound tokens), What They are, and how they work.
Limitations of an NFT
So, everyone must have heard of NFTs. What’s so special about NFTs? Yes, they are Non-Fungible Tokens, which means one NFT cannot be replaced with any other like we replace a penny with another penny.
As more and more use cases of NFTs approach day by day, we face certain limitations to utilize its use cases. One of the limitations must be the transferability of NFTs.
Why is that a limitation?
Here’s one scenario: Suppose there’s an airline issuing ticket for its passengers as NFTs. You received your NFT ticket in your wallet from the airline a day before. But your friend Simon doesn’t want you to travel and he transferred your NFT ticket to his wallet while you were asleep. The next day you returned from the airport as they couldn’t verify the presence of the NFT ticket on your wallet.
All this happened because your ticket was transferable. That’s where SBTs come in useful. Let’s dive in.
What are SBTs?
SBTs or Soulbound Tokens are simply non-transferable tokens. Once an SBT is issued to a certain wallet(or Soul), it is impossible to transfer that certain SBT to another wallet(Soul).
So, what’s the big deal with non-transferable tokens other than the flight ticket scenario mentioned earlier?
There’s so much that SBTs can kick-start that the current web3 ecosystem couldn’t offer. I”ll explain some possible use cases while explaining the DeSoc, also known as the Decentralized Society.
DeSoc
The idea of a Decentralized Society was put forward by E.Glen Weyl, Puja Ohlhaver, and Vitalik Buterin in a paper published in May 2022. The current web3 ecosystem is built on the transferability of financial assets rather than social relationships of trust. DeSoc is a co-determined sociality to be built on-chain using off-chain relationships and trusts.
Having SBTs representing one Soul’s credentials and affiliations, Souls can build reputation, opening a new doorway for economic activities such as uncollateralized lending. Souls come bottom-up, creating a richer pluralistic ecosystem called DeSoc.
Let’s check what DeSoc can offer using the idea of a SoulBound Token.
Souls
Each Soul(wallet) represents a Human Being. One can create multiple wallets and have multiple SBTs across the wallets.
Example: You can have your Graduation Certificate SBT issued by your University’s Soul on one of your Souls and keep your Medical Record SBT by your Hospital on the other Soul. Having one or more Souls creates a lack of reputation.
SBTs can be hidden from the public and are also burnable like NFTs. A burning mechanism can be used to prevent spam SBTs.
Provenance
SBTs can provide provenance of work at ease. Artwork(NFT) originated from a certain Soul, where SBTs representing the Artist’s Identity are present, and are more likely to be the original artwork than the other copies of the same artwork available on the marketplace.
SBTs can tackle fake works that AI and Humans couldn’t easily do.
Undercollateralized Lending
SBTs that represent education credentials, work history, and rental contracts can act as a record of credit-relevant history and allow lending platforms to lend in stake of a Soul’s reputation without any collateral.
A Soul can get a loan at the stake of its reputation and get issued by an SBT, by the loan lender, representing the loan and can be replaced (burned and reissued) by an SBT showing the repayment of the loan. In case burning the SBT representing the loan without repayment will affect the future reputation of that certain Soul.
Soul Recovery
What if you lose access to your Soul in which your SBTs are present?
Are your credentials permanently lost?
DeSoc puts forward a more sophisticated recovery model, the community recovery model.
In a community recovery model, in order to recover the private keys, consent of a member from a qualified majority of a (random subset of) Soul’s communities is needed. The communities can be on-chain like DAOs or off-chain like Souls sharing the same graduation SBTs or Souls sharing the same workspace SBTs.
Governance with SBTs
DAOs or Decentralized Autonomous Organizations can fall victim to Sybil attacks, where an individual hoards 51% of the governance token and manipulates the outcomes of proposals by a DAO.
Is it possible to resist Sybil attacks using SBTs?
These are the possible ways to resist Sybil attacks using SBTs.
- By computing the constellation of SBTs of Souls and differentiating between unique Souls and probable bots, thereby denying voting power to a Sybil.
- By conferring more voting power to Souls holding more reputable SBTs like education credentials or licenses or DAO representations.
- By issuing specialized PoP(proof-of-personhood) SBTs, which can resist Sybil attacks.
- By checking the correlations between Souls that support a particular vote, and lowering the weight of votes of highly correlated Souls.
Permissioning Access
Another use case of SBTs is giving permission for access to resources.
Eg: Cars, Houses, Parks, or Virtual Equivalents.
Scenario: You are invited to a virtual event and are provided with an NFT acting as the access to the event. It is possible to transfer the NFT to someone else by you and misrepresent your voice, while the issuer of the NFT only intends to share the usage of the NFT but not the permission to share the access.
The above scenario can be tackled using SBTs efficiently. SBTs unlock use cases like renting cars or houses without giving away the power to permission access like NFTs do.
Conclusion
The transferability of NFTs is a limitation to the ever-growing space of web3. Certain Soulbound Tokens can build a reputation with the Souls representing them and earn access to economic activities like uncollateralized lending. SBTs can be used to identify original works of artists from their copies. In case of losing access to a Soul, the private keys can be recovered using the community recovery method, where consent of closely related communities of a Soul helps to recover the private keys. Sybil Attacks can be resisted using SBTs efficiently. And lastly, unlike NFTs, SBTs can be used to share usage access and not permissioning access.
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