What Are Soulbound Tokens

Soulbound Tokens (SBTs) are non-transferable digital tokens permanently linked to a specific wallet address. They represent attributes, credentials, or affiliations unique to an individual and cannot be bought, sold, or traded like traditional NFTs.

SBTs are essential to the development of decentralized identity and reputation systems in Web3. They offer a way to publicly verify achievements, social affiliations, and contributions without relying on centralized authorities.

The term “Soulbound Token” was first introduced in a May 2022 paper titled Decentralized Society: Finding Web3’s Soul, co-authored by Ethereum co-founder Vitalik Buterin, economist Glen Weyl, and lawyer Puja Ohlhaver.

Key Takeaways

Soulbound Tokens are non-transferable and permanently linked to a wallet.
They signify achievements, affiliations, or credentials in decentralized identity systems.
They offer new use cases but raise privacy and revocation issues.

Key Characteristics

Non-transferable

Unlike typical NFTs that can be freely traded or sold, SBTs are bound to a single wallet. This immutability ensures that the information they represent, such as credentials or affiliations, remains trustworthy and uniquely tied to the original recipient.

This characteristic is crucial in applications like identity verification or academic records, where allowing transferability would undermine the token’s authenticity and provenance.

Permanently Linked to Wallet

SBTs are tied to a wallet address, often referred to as a “Soul.” This wallet becomes the identity anchor in the Web3 world. While SBTs can’t be transferred, some implementations may allow issuers to revoke or update them.

There are ongoing discussions about how users can protect their privacy while still using SBTs, such as through multiple identities or wallet abstraction layers.

Identity and Reputation Use Cases

SBTs have the potential to act as building blocks for decentralized identity systems. They can represent:

Academic credentials: degrees, course completions, certifications
Employment history: proof of work, titles, roles
DAO participation: voting rights, contribution records
Reputation: trust scores, badges for behavior in online communities
Credit history: decentralized verification of on-chain lending or repayment behavior

Real-World Applications

Education

Universities and online learning platforms can issue diplomas, transcripts, and course completions as Soulbound Tokens. This would reduce fraud and make credential verification seamless across borders and industries.

Employment

Employers can issue work experience badges or skill certifications as SBTs. This allows individuals to carry their verified career records across different platforms, projects, or even metaverses.

Governance

DAOs and other decentralized communities can use SBTs to represent voting rights or contribution tiers. For instance, a contributor who has participated in five proposals may earn an SBT reflecting their commitment level.

Events

Proof-of-Attendance Protocol (POAP) tokens are similar in spirit but usually transferable. SBTs could serve as non-transferable alternatives to verify attendance at events, meetups, or conferences in a more identity-anchored way.

Criticisms and Concerns

Privacy implications: The public nature of wallets could expose sensitive information like one’s political views, education level, or medical history.
Deanonymization risks: As more SBTs accumulate in a wallet, it becomes easier to identify and track the wallet’s owner across platforms.
Revocation and permanence: Since SBTs are non-transferable, there are questions about how to revoke or update them in the case of error or misconduct.

Future Potential

SBTs could play a pivotal role in creating a Web3-native reputation and identity system. Possible future applications include:

Credit scoring: Based on community engagement or transaction history rather than traditional financial data.
Reputation layers: Used to evaluate credibility in freelance marketplaces, forums, or DAO proposals.
Privacy-preserving systems: Combined with zero-knowledge proofs (zk-proofs) and Decentralized Identifiers (DIDs) to enhance anonymity and control.
Token utility: Expanding the functional scope of SBTs beyond identity to access control, governance, or unlockable content.

Summary

Soulbound Tokens (SBTs) are non-transferable digital tokens permanently tied to a single wallet, designed to represent credentials, affiliations, and identity in the Web3 ecosystem.

Unlike NFTs, they cannot be traded, making them ideal for use cases like academic diplomas, employment history, and DAO participation.

While SBTs offer significant potential for decentralized identity and reputation systems, they also raise concerns about privacy and revocation. Their future lies in combining token utility with technologies like zero-knowledge proofs and blockchain-based decentralized identity solutions.

Related Terms:

FAQ

What is the difference between NFTs and SBTs? NFTs can be bought, sold, or transferred; SBTs are non-transferable and linked to one wallet only.

Can I sell or trade a Soulbound Token? No. By design, Soulbound Tokens are not meant to be sold or traded.

Who controls the issuance of SBTs? SBTs are typically issued by trusted institutions, communities, or protocols. The issuer decides the criteria for minting and revocation.

Can a Soulbound Token be revoked or deleted? In some implementations, issuers can revoke SBTs, but most designs don’t allow user-side deletion or transfer.

Are SBTs secure and private? Security depends on the smart contract’s design. Privacy is still a concern and an active area of research, especially around deanonymization and data visibility.