The web3 ecosystem is evidently growing around financialized and transferable digital assets, undeniably bringing opportunities to the community. However, Ethereum co-founder Vitalik Buterin has once again challenged the existing structure of NFTs, striving towards a decentralized society (DeSoc) with a redefined focus.
Buterin, along with Puja Ohlhaver, and Glen Weyl published a whitepaper entitled “Decentralized Society: Finding Web3’s Soul.” Its concept revolves around community building based on social interactions and trust. One of their proposed methods is the so-called Soulbound tokens, which developers can apply in different use cases.
Ready to understand how web3 aims to find its soul? Discover it with us through learning the concept of Soulbound tokens in strengthening social relationships across the metaverse.
What are Soulbound Tokens?
Soulbound tokens (SBTs) are non-transferrable digital tokens or NFTs that embody a user’s identity and relationship to society without monetary value attached.
The idea is that a user’s crypto wallet will be called a Soul, which could contain various SBTs. Owners can have multiple Souls depending on record classification. A student can have a Credentials Soul to serve as proof of being a member of a particular university, which would receive various SBTs throughout a school year for all the classes and extra-curricular activities attended.
This simple feature of disabling transfers could substantially expand the use cases of NFTs to enable non-financial systems of trust. SBTs are an interesting concept that aims to push web3 into a decentralized society (DeSoc) where the financial capabilities of the community will have less impact on the space. It will focus more on the holder’s unique identity, such as expertise, credentials, records, or any relevant information.
Although the concept is incomplete, Vitalik Buterin and his team proposed SBTs to explore human verification, governance, and proof of attendance to challenge their current structure and see other possibilities.
While the concept is still new, some projects are already implementing their own versions of SBTs. For instance, Pudgy Penguins have the so-called penguPins.
Why are Soulbound Tokens Significant?
The valuation of the NFT market can grow more in the next few years as more projects come into the web3 space. Most of them focus on utilities, but the culture grows around making money.
For example, the most expensive digital art sold of all time is Everydays: The First 5,000 Days by Beeple for $69 million. Buying it is one of the ways to celebrate ownership, and it has brought opportunities to artists. The problem is not everything should be about money, and this is where SBTs come in.
The non-transferable NFTs can be one of the ways for the community to explore possibilities beyond financialization, creating equal opportunities for all in other social aspects like experience, contribution, expertise, and a whole of other social metrics for trust. In this way, like souls, holders are represented through their identities and social activities and not mere financial capabilities.
What are Soulbound Tokens For?
Soulbound tokens revolve around detaching monetary value from social relationships, promoting a new paradigm of social trust. In this model, no one can buy their way into a soulbound token. They’d have to earn them in the same way everybody else does.
Developers can use non-transferable tokens for human verification systems to hinder the use of fake identities for socially-driven projects. The goal is to connect humans and build a community that trusts each other.
One of the examples is the Proof of Humanity project, an Ethereum-based system designed for people to use (bots are not welcome here!). For instance, users can create an account to participate in making DAO proposals. Owners can utilize their identity as their ticket to gain such an advantage.
If users want to take down their accounts, a justice protocol will verify whether the owner and requester are the same. The process ensures that no person takes advantage of the identity of the other, as this harms trust between them.
The SBTs also apply to ENS domain names, especially when users consider security and privacy.
Decentralized governance comes with risks, mainly since the community’s voting rights depend on the number of tokens they have. There are two main problems here: inequality and vote buying.
A decentralized autonomous organization (DAO) is where no entity holds control of everything, making the power distributed to the community. However, it’s difficult for today’s DAOs to truly reflect this supposed ethos. Whales usually hold more influence relative to small-time holders since we use wealth as the main criteria for governance.
On a separate note, since most DAO proposals are open to all, anyone can see the tally of votes. Once the result goes against someone’s expectation, it can lead to bribery. Sounds unfair, right?
These issues of inequality and vote buying can be addressed by making the community’s rights dependent on participation instead of wealth. DAOs can utilize SBTs to disable the transfer of power. Instead of transferrable governance tokens, SBTs can be used to promote an on-chain governing council based on other metrics that attended the most DAO events in a six-month period or so.
If the DAO issues an SBT for every event attendee, those who accumulate the most, among other SBT-based metrics, could be the basis for who should have more influence in a project. This flips the scales from the wealthy to those that provide real value.
Proof of Attendance
We may have mentioned proof of attendance in the previous section; let’s get more in-depth here.
Soul-bound tokens work like a passport when used as proof of attendance; the only difference is that the community gets event participation as stamps instead of countries. That way, SBTs will be judged not based on their financial value but by presence.
An example of a project that implements proof of attendance is POAP. Participants with badges can join raffles, have art access, and more, while beginners can engage in sponsored events and gain attestations over time. Everyone gets to have fun-filled opportunities.
If other developers aim to explore non-transferability features, POAP recommends they should focus on confirming whether the current owner and the original one have a similar address. Adding verifications will make the concept even more future-proof.
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