One of the major features on which the Soul bound tokens (1) are based is non-transferability. Web3 right now is becoming more and more finance-oriented, with NFTs becoming the signifier of wealth. NFTs (2) have now turned into a set of social signals, that signifies your wealth and ability to acquire them.
NFTs, as we know, are unique, and non-fungible. Therefore owning a rare NFT would instantly symbolize the holder's ability to acquire them that they have sufficient knowledge about which NFT to purchase to gain profit. But to own a rare NFT doesn't exactly mean the holder has themselves made an effort to get them.
There are multiple ways people could get the ownership(3) of NFTs, they could simply buy them from someone else. They could even pay someone to acquire the NFT for them.
Therefore, if a person owns an NFT that is hard to acquire and they do not have enough credibility to own them, it becomes quite clear that they have bought those NFTs.
An easier way to understand this would be to look at scenarios of games.
Fun fact: Did you know that soulbound NFTs were inspired by the Game World of Warcraft!
Now, let's move on with the example:
In a game, a player owns a very rare high-quality armor or weapon, but this does not mean that the owner made the required effort to get the armor. There are many ways they can get their hands on that particular armor.
They can just use a lot of money to buy the item, they can pay somebody else to win the item for them. Similarly, in cases of NFTs, which are easily transferable assets it becomes quite easy to gain the ownership of NFTs that are rare.
NFTs being easily transferable has boosted the hyper-financialization of Web3, here the assets/NFTs have turned into a showcase of the owner's wealth. This does not mean buying NFTs is a bad thing, there are many benefits of purchasing NFTs, including supporting the artist (4) or making contributions to the charity by buying the NFTs.
But have you ever imagined NFTs that are non-transferable? You might also what would be their function?
Well if you have then you’ll be glad to know (5) that in May 2022 the creator of Ethereum Vitalik Buterin, economist E. Glen Weyl and lawyer Puja Ohlhaver have come together to propose the concept of Soulbound Tokens!
So, What the Heck is Soulbound Token?
Soulbound tokens are non-transferable tokens that hold publicly verifiable information about their users. These tokens can function as the CV of the owners, displaying their credentials, affiliation with communities, etc. they can even map the social activities of their users.
If you are wondering what is the relation between Soulbound Tokens and non-transferable NFTs?
Let me elaborate on that,
The Soulbound tokens are basically Non-transferable NFTs.
The idea of non-transferable NFTs by extension is a representation of their owner, which is similar to what Soulbound tokens aim to be and much more.
The Soulbound Tokens might become the primary building block for the emerging decentralized society of the future. Decentralized Society or DeSoc (6), would rely on the Soulbound tokens to create a stage for a new governance mechanism, property rights, etc.
However Decentralized society is a still-developing idea that might take shape soon.
The DeSoc aims to change Web3’s path from hyper-financialization and commodification to a more decentralized and democratic environment, they are based on bottom-up communities that are owned and governed by the users (7). Therefore, Souldbound tokens will become an essential feature of a decentralized society representing the credentials, affiliation, and memberships of the users. The SBTs are not meant to have a market value like the NFTs.
What would the SBTs do?
The Soulbound Tokens are held by wallets, these wallets would hold Souls that could be associated with various organizations and associations.
One example could be your college degree. The degree can only belong to one person, it is not transferable. Therefore colleges could issue SBTs to their students as evidence. Once you have the Soul in your wallet it would then become publicly verifiable evidence that the users have attended the college.
The users can have multiple Souls (8), for example, you can have a credential soul, an Identification soul, even a soul for your medical history, and much more. So, SBTs define their owners, and the organization they are associated with.
Soulbound Tokens perfectly complement decentralized society, therefore they can be used for many cases, such as:
Maintaining medical records: You can use the Soulbound tokens to maintain your health profile and your medical history. It would be quite convenient in difficult situations, and you won’t have to go through long procedures because everything required would be recorded in your Soul wallet.
Record of Professional life: The professional Soul could be used to represent your professional experience, you can have your achievement there and even your CV. Suppose, you got the best employee award, this achievement could be recorded and represented through your Professional Soul.
Identification Soul: The users would have an identification Soul to hold their Driver's license, passport, etc.
Decentralized loan: Users can now use the blockchains to keep records of their account management, the token would keep a record if you have taken a loan and the amount of the loan. This would make the whole process more convenient. It could be kept as a publicly verifiable token.
We can use the Soulbound tokens for many things and right now only our imagination is the limitation to their uses (9).
Soulbound tokens could basically track a map of the user's social life!
Soulbound Tokens: Why do we need them?
Soulbound tokens will become the foundation of the decentralized Society. Weyl views soulbound tokens as something that would bring decentralization of the virtual world to real human relationships and social life. Since these tokens are not transferable, they could be used to define and describe the social identity of their owner.
The SBT is designed to reshape how the users interact and build communities.
What would happen if governance become soulbound?
Right now the situation is such that the users hold stakes in the future development of the platforms. The users have their own voting rights, but these voting rights are not equally distributed among the users, it usually depends on how many assets the user owns.
So, whale accounts that basically hoard assets would hold much more sway in the decisions regarding the platforms in comparison to other users. The soulbound tokens can be used to democratize the power among users (10).
Therefore, each user would have an equal say in matters regarding the platform, this would also safeguard them from those who create multiple accounts.
Some have been quite vocal about their opinion of questioning Soulbound tokens, one such person is Knifefight. He expressed how he believes Soulbounds are not doing anything new, what they promise has already been done but in other ways.
He said he found no need for the soulbound tokens, and that soulbounds are nothing but digitally signed messages written by others.
Non-transferability of SBTs
You might start wondering what makes the soulbound tokens non-transferable. There are a few methods to ensure that, one such method is to bind them with the user's ENS (11), assuming that people care enough for their ENS name and would not want to part with them.
Right now it is quite difficult to ensure the non-transferable aspect of Soulbound tokens. Because there are instances when the users might have a genuine reason to transfer their tokens. Therefore, the only solution right now is to limit the transferability as much as possible.
Some projects have been able to limit the transferability of the tokens, such as POAP. POAP stands for proof of attendance protocol, according to this protocol NFTs are sent to the recipients who have personally participated in the events.
The POAP does not signal the wealth of the owner but is proof that the owner had personally participated in the event. They are like a badge of participation. But still, POAP cannot ensure that the tokens are non-transferable. There have been many examples of POAP being sold.
The only method to resolve the non-transferability of the token is that if the developers care about these issues, then they can only check by themselves in intervals if the owner has changed or not.
Another project (12) that has been able to achieve non-transferability is the proof-of-humanity attestation project. It allows anyone to create a proof-of-humanity account that has transferable ownership. But the problem arises from the revocation feature, this feature allows the owner to remove their account by recording a video asking to remove their account.
This means even if somebody does buy an account with another’s proof of humanity, it could be taken away from them and they would have no say over it. To create an account the users would have to revoke their old account and therefore, proof-of-humanity is Soulbound.
After the announcement of Soulbound tokens, many companies have decided to use these Souldbound tokens.
Following are the companies that have already released their own soulbound tokens:
Recently BinaryX the company behind crypto games CyberArena and Cyberdragon announced the launch of its collection of NFTs called Rh!noX. Rh!noX is a 10,000 pieces collection of Soulbound NFTs (13).
BinaryX began as a decentralized derivative trading system and then it slowly expanded to GameFi. By 2022, it has become the eighth largest project on GameFi on the BNB chain. The governance token for BinaryX is $BNS, this token can be used as a medium of exchange, for marketplace transactions, and in games, it can be used to recruit heroes.
These NFTs would allow the owners to use the Rh!noX avatar on various BNB chain applications on DeFi and GameFi. The series has drawn its inspiration from the World of Warcraft Universe. The soulbound items in the World of Warcraft are the main source of inspiration. The soulbound items are bound to the soul of the avatar and could not be transferred or bought.
The Rh!noX NFTs attempt to do something similar by binding themselves to their holder's avatar.
Benefits of the Rh!noX NFTs
The holder can use these avatars to play games on GameFi and DeFi on the BNB chain.
- They get access to new GameFi tokens and NFTs
- They can get access to beta tests for games
- Access to NFT whitelist
- Access to DeFi projects
- Unsecured credit loans
An on-chain behavioral analysis system would grade the soulbound tokens and also track the actions of the users to generate a credit score. This credit score would decide how many benefits the holders can obtain(14).
Phala Networks has launched their first soulbound tokens for Phalaworld, which is a metaverse gamification extension. The gamification extension is based on the Phala Network Blockchain.
About Phala Networks
A decentralized cloud computing protocol, that aims to provide its services through a decentralized global network. The network computes resources with the ability to scale for performance and simultaneously optimize security and confidentiality(15). They use two worker nodes to operate the network. These two nodes are the Gatekeeper Nodes and the Miner nodes. The Phala world is a gamification Extention project, it is portable and not limited to the space of metaverse.
About the Spirit NFTs
The Spirit NFTs are soulbound NFTs that are linked with the social media accounts of the holders. The Spirit NFTs are the game entities who use Fat Contract to make their attributes soulbond by tying the holder account to their social media account such as Instagram, Twitter, etc.
The game is inspired by the World of Warcraft and allows the spirit NFTs to be soul bonded to their holders. This helps the holder to use the decentralized services of Web3.
The characters could be of four species and five careers, these basically depend on their contribution to the game.
The soulbound mode is combined in order to split the tradable shellNFTs and Spirit NFTs. The user could mint the Shell NFTs, which are the user's NFT avatar, to obtain creatures called Origin shells. The origin shells' of different species have their distinct style. After minting the shell NFT can only start with the origin shell, they would not be able to see the final appearance of the shell (16) immediately.
The spirit NFTs can be acquired by the users for free and the level of these spirits depends upon the actions of the players. They can level up their SpirtsNFTs through continuous efforts and contributions to the world. They are the incarnation of the holders, they are based on the behavioral data of the players.