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Soulbound Tokens: The Building Blocks of a Decentralized Society

tl;dr Summary: Vitalik and a group of researchers took the concept of non-transferable items from a video game to create the building block of decentralized society and identity ownership on web3.

Recently, the web3 world got introduced to a new buzzword. “Soulbound tokens (SBT)” is the brainchild of Vitalik Buterin, who introduced this new concept in his paper called “Soulbound.” Glen Weyl, Puja Ohlhaver, and Vitalik elaborated on it in their collective work, “Decentralized Society: Finding Web3’s Soul.” 

Borrowing the name from the famous game World of Warcraft (WoW), in which “soulbound” items are untradeable items linked to a character, the trio explains how SBTs can be the building blocks of a “Decentralized Society (DeSoc).”

What is a Soulbound Token?

Soulbound Tokens are publicly visible, non-transferable NFTs (non-fungible tokens) that function as real-life accomplishment badges to establish provenance and reputation. These can showcase your career history, education, degrees, skills, memberships, or affiliations, intended to build social identity. 

The accounts that hold these SBTs are called “Souls.” These SBTs can be “self-certified” in their most basic form, comparable to how we disclose information about ourselves in our CVs or social media profiles. When SBTs possessed by one Soul may be issued or attested by other Souls who are counterparties to these interactions, the real potential of this mechanism is revealed. Individuals, organizations, or institutions can be these counterparty Souls. For example, the local tennis club could be a Soul that issues SBTs to all the participants in their quarterly tennis competition.

Uses of SBT

According to their paper, SBTs can play a vital role in removing several dependencies that current web3 has on web2 and incorporating real-life financial activities that depend on trust.

Some of the applications that SBTs can help spurn include:

1) Remove dependency on web2 social platforms like Twitter in favor of a social network that revolves around one’s social identity in web3.

2) DAOs that try to move beyond simple coin-voting to thwart coordinated attacks. 

3) Enable a more robust mechanism of recovery for self-custodial wallets.

4) Allow uncollateralized lending, which depends on the trust and the reputation that credentials and affiliations bring.

5) Apartment leases and other similar contracts based on one’s social identity in web3.

6) Feedback, credit, and service ratings to enable community and inter-community engagement.

An exciting area in which SBTs can also help is the measurement of decentralization in a network, DAO, protocol, or ecosystem. The current measurement method looks for decentralization in wallets and token holdings. However, this is ineffective as many people can have multiple wallets, and some have many wallets (exchanges) representing many people. 

SBTs provide a better mechanism since it captures social dependencies and affiliations. The exact details are still a work in progress and require further research.

Reclaim lost SBTs

Just like any token, SBTs can get lost or stolen. The good news is that SBTs can allow for “community recovery” of lost keys. 

Community recovery takes the concept of social recovery to a whole new level. Social recovery is a mechanism by which self-appointed “guardians” can recover your private key in case of any eventuality. Guardians could be a mix of individuals, institutions, or other wallets. Usually, these would be close friends, colleagues, or family members, which requires maintaining these relationships. 

A better way would be to tie a Soul’s recovery to a more diverse group of people from a random group of affiliated communities. 

Source: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4105763

But the authors expect that more work is needed to make this viable. For instance, the question of how to choose guardians or how many would be required needs more deliberation and experimentation. 

DeSoc: Decentralized Society

According to the authors, SBTs provide the substrate or base for creating a truly plural society. They point out that web3 will continue onto the path of hyper-financialization as web2 if it keeps aside the need to develop this substrate that represents human souls and their relationships. 

They call this plural society “Decentralized Society (DeSoc).” By bringing trust back to the system, DeSoc converts DeFi’s race to control and speculate on the value of networks into bottom-up cooperation to construct, participate in, and regulate them. The authors feel that this, at minimum, will make DeFi resistant to attacks by enabling community governance and also resilient to capture and domination by whales or institutions, unlike web2.

But the world is not all green. The authors understand this and do not shy away from discussing potential drawbacks and problems that could arise in a DeSoc. 

In the aptly titled section “Souls can go to Heaven…or Hell,” they mention that although SBTs have the power to liberate a network, they can also disfavor certain groups or enforce restrictive policies. 

According to them, even if DeSoc cannot be non-dystopian, it is still preferable to DeFi’s inevitable dystopia, with power concentrated in the hands of a few. In other words, DeSoc is to DeFi what democracy is to monarchy.

Needless to say, privacy poses the most significant concern here. Individuals can create different Souls for themselves, like a family, professional, or political Soul, but this can quickly make too much information public. On the other hand, having too many private Souls can result in private communication channels that defeat the purpose and could lead to collusion and backdoor manipulation. 

The authors understand that this is another area that requires work. They do not claim to know the answers to all the possible scenarios but propose some possible solutions, including mechanisms to let users decide when to reveal their data and use zero-knowledge proof on SBTs.

Cheating souls is another area of concern. Imagine a job application requires attending a conference; unscrupulous humans (or bots) could potentially bribe their way in. However, the authors are optimistic and suggest that research can address these problems. 

So when can we start seeing SBTs? Perhaps by the end of this year, says co-author Glen Weyl in his interview

Can this be the birth of a democratic digital society on web3, or will it be just a distant dream? Only time will tell. What is true is that this marks a significant step forward in that direction and will encourage more from within the community to come forward and contribute toward the goal.


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