What are Soulbound Tokens (SBT)

One of the new tokenization technologies that has aroused the greatest interest among blockchain developers has been Soulbound tokens. 

UThe Soulbound token (SBT, by the acronym by which they are known) is a tokenization proposal that seeks to create a type of hybrid token, capable of being fungible and non-fungible, depending on the needs of its creation and its creators. The idea is to create tokens that can be "soul bound" to a specific person or real property, thereby seeking to create real and verifiable recognition attributable to a specific person or property as required.

How does a Soulbound Token (SBT) work?

Explained in the way we found it above, a Soulbound token seems more like a science fiction story, but the reality is much more practical and realistic. At this point, perhaps an example will help us understand how it works and what exactly is sought with this type of token.

Imagine for a moment that you are a person with outstanding and unique knowledge in your area, knowledge that the community recognizes and for which they decide to reward you. Currently, a widely used way to give yourself that recognition is to offer you an "honorary doctorate", something for which they offer you a degree and academic recognition. This title is something that is "tied to your soul", to the knowledge that you have and are able to offer to others, and as a title, it can be verified, by anyone, but since it is a physical item, verifying its authenticity can be difficult. quite problematic and even impossible in some cases. The important thing in this first point is:

1. That the University or community that issues the degree is publicly recognized, and the entire process can be verified (even if it is complex at the bureaucratic level).
2. The title can only be issued and held by you, it is not transferable.
3. The title, for very specific reasons, can be canceled by the issuing entity (it can go from being non-fungible to fungible, to be eliminated).

Now, blockchain technology can help us recreate something like this. To do this, we only have to create a token that digitizes that title, being issued by a recognized and verifiable entity. This address would have the ability (under its authority accepted at the community level) to issue that same title, leaving the entire process recorded in the blockchain. Thus, we have an easily verifiable and auditable record of the issuance of that title to you, and it would only be enough to check its hash in a block explorer to know if that title is indeed valid and has been conferred on you.

This type of technology allows verification to go from being a slow bureaucratic process with dozens of intermediaries to being simply a search on a block explorer. Not only that, but the issuing entity (the university in this example), can ratify or withdraw said title in case you have violated its rules or have failed to do so.

Imagine the possibilities of something like that. We are talking about the fact that we can issue certificates of any kind to certify any person or entity, that said certificates can be easily verified, that they can be updated and if the rules for holding them are not met, the certifying entity can simply withdraw its validity and all this is also publicly registered in a blockchain. In this sense, Soulbound tokens would have the best of fungible tokens (ERC-20) and non-fungible tokens (ERC-721 and ERC-1155), taking blockchain technology to a new level.

Thus, basically the Soulbound tokens seek to recognize and allow the verification of an achievement attributable only to the person who has achieved it. For example, they can be used as proof of verification, sovereign digital identity, identification of charitable and nonprofit organizations, among others. Even act as a bargaining chip without more. In this sense, its usefulness is immense. Hence the name of Soulbound or «Link to the soul». The concept was presented by Glen Weyl, Puja Ohlhaver and Vitalik Buterin, on May 10, 2022.

The goal of the Soulbound tokens: the creation of the Decentralized Society (DeSoc)

In this work we are presented with a new concept: Decentralized Society (DeSoc) or Decentralized Society. The idea behind this concept is simple: to make the different social elements and organizations decentralized using blockchain technology. We are talking about building new social recognition structures that can take advantage of this technology with very clear objectives: improve privacy, increase transparency, auditability and verifiability of the processes within said structures, create more open and transparent governance mechanisms, and achieve new schemes monetization for them.

For this, the Soulbound tokens are essential, these being recognized with a slightly more technical name: NTST or Non-Transferable Social Tokens. An NTST is simply a type of token that cannot be transferred by the recipient. That is, a person or entity creates the token, a special type of NFT token that is uniquely assigned to you. You may use it as a means of disclosing your identity or any special property this token grants you, but you may not transfer said token: it is for you and you alone.

The idea behind NTSTs is not new. In fact, in Ethereum, there is an EIP where they are discussed, the EIP-1238, known as “Non-transferable Non-Fungible Token – NTT”, created on July 20, 2018.

This interesting proposal, accompanied by more than 60 interventions, is the origin of the NTST and the Soulbound tokens. Interesting things like BadgerDAO Badges or MakerDAO Non-transferable Badges were born from this proposal, so you can see the interest in this type of technology.

Despite being a recently created concept, the reality is that DeSoc has a lot of potential to develop, especially if we take into account that:

1. Today's Web3 revolves mostly around funded and transferable assets. However, DeSoc seeks to use this space for functions that go beyond financial reality, seeking to create a "transformative future of our societies and their organization."
2. However, DeSoc can leverage the financial functionality of DeFi. For example, a DeFi protocol can have DeSoc elements that highlight a person as a good user, giving greater confidence and presenting more specific products for it. This is also applicable to other spaces, where DeSoc can be a point of recognition for people or entities. For example, a good plumber can receive good references for his work, standing out among those on a certain platform, and at the same time avoiding "bad reviews", because these would have an associated cost, discouraging bad reviews that often seen on today's centralized platforms.
3. For example, SBTs can be used as a way to better encode social networks on the Web3.
4. DeSoc can further pave the way for new property rights and governance mechanisms that "reward trust and cooperation, while protecting networks from capture, extraction, and domination."

Seen in this way, DeSoc is a transformative concept, which, although it still needs a lot of development, will surely be very present in the coming years.