Are soulbound tokens critical to web3?
Originally Published on LinkedIn — September 14st, 2022.
Soulbound tokens (SBT) are a new theoretical token standard, first mentioned in Vitalik Buterin’s January 26th, 2022 blog post ‘Soulbound’ and expanded upon in the cornerstone whitepaper ‘Decentralised Society: Finding Web3’s Soul’ published May 10th, 2022.
In the genesis blog post, Vitalik revelled over the idea of a non-transferable but equally recoverable token; similar to the widely accepted in-game item standard under the same name. In-game soulbound items are used to reward character-specific unique achievements or limit access to potentially economically breaking benefits.
The need for an ERC standard or a variation of ERC with inbuilt anti-ownership transfers and recoverability is compounding.
Recently, Binance announced a new standard reminiscent of SBT, the Binance Account Bound (BAB) token. Naturally, Binance is leading the charge by researching and applying theory to tangible product applications in a short period of time.
Equally, the lesser-known SBT/NFT Sticky Notes (https://lnkd.in/eQnHTb8J) is a novel way to create an on-chain sticky note that can be minted as an NFT or SBT.
The blockchain industry is pre-disposed to creating ‘rounder wheels’ and products without market validation. Success stories in a bull market are akin to expecting the rush to last forever. Now in a bear, web3 ventures are tested against the challenges of a bear market, hopefully filtering out the ventures lacking substance, product-market-fit or traction.
NFT technology is inherently flawed, skewed towards hyper-financialisation and limited use cases. However, the decentralised innovation industry has a propensity to adopt commercially exploitable technology, leading me to believe NFTs will have a significant commercial advantage over SBT in the short & near term.
SBTs are the required innovation to legitimise the web3 industry, as we codify trust & reputation into tokenised proofs. I am also conscious that the 2022–2023/4 bear market may stifle the research and development into SBT technology, despite being on the cusp of initial crypto native use cases and the industry impact.
To be clear, NFTs and SBTs do not compete with one another — transferability and recoverability standards determine the use. It is clear that NFT communities, PII and reputation use cases, would be better suited for SBTs, especially the NFT community model.
Groups leveraging NFTs to create co-operable communities historically lead to entropy. Highly successful NFT communities become exploited for financial returns, and unsuccessful NFT communities fizzle out by member attrition.
This is where SBTs come into play. Starting communities with non-transferable and recoverable tokens is the first step to creating a graph of socially accepted goods, services and reputations.
