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October 25, 2022

Soulbound Tokens: The (Web3) Way to a Decentralized Society?

Key Points

Web3 - the evolution of the internet powered by blockchain technology and greater user control - is meant to unlock a new way of interacting with the internet. The internet is critical to our daily lives; we live, work, and communicate with and on it constantly. 

Therefore, it stands to reason that Web3 has the potential, at least, to transform our lives once again, in much the same way that the original internet did. But how?

Tokens Around the Crypto World 

The crypto world today functions around two fundamental types of tokens: cryptocurrencies are tokens that can be traded, bought, sold, and exchanged 1:1, because their value is the same, no matter the owner. Bitcoin and the whole family of ERC-20 tokens are the best known examples. 

Non-Fungible Tokens (NFTs) are the second kind. Each NFT is cryptographically unique. One person might trade 1-for-1 with another one, because those tokens happen to have the same value at the time - not because they were identical.

Both kinds of tokens have already begun to transform the ecosystem, from payments to art collecting. But a potential third kind of token could take Web3's impact to a whole new level.

Soulbound Tokens: Non-transferrable NFTs

Vitalik Buterin, creator of Ethereum, draws the word "soulbound" from its original gaming use. In RPGs, soulbound items belong to a single character. Your mage wins them from the rarest monsters and gets them as loot in the toughest dungeons. And unlike ordinary loot, you can't trade or sell them.

Why? Why risk virtual life and limb for something that can't be traded?

Beyond the stat boosts such items give, there's also the street cred. Wearing a particular piece of armor instantly marks your character (and by extension, you as the player) as someone special. YOU killed that dragon, YOU cleared that dungeon. You didn't buy the item off someone else who did all the hard work.

What does that mean for crypto and NFTs? NFTs are undeniably cool and full of potential. There are already plans to use NFTs as digital tickets to big events, as unique identifiers for carbon offsets and also as digital real estate. But if NFTs could lose the transferrable aspect, if they could be permanently "bound" to a "soul", then whole new use cases could open up.

These non-transferable NFTs, also called soulbound tokens or SBTs, could verify a person’s age, date of birth, identity, digital assets, education, and virtually all kinds of physical traits. Work achievements? Instead of a plaque on a wall somewhere, show future employers a list of employee-of-the-month SBTs. Education? SBT diploma and training certificates can be issued as SBTs, allowing the SBT to function as a complete set of educational credentials. Employment history? Highlight the progression of your career, with unique SBTs from every company.

So SBTs could allow users to control almost every aspect of their social identity. The possibilities are nearly endless! But they don't come without some concerns.

Soulbound Drawbacks

Tracking everything with a soulbound token sounds great, but there are some obvious drawbacks. 


The crypto economy isn't immune to hacks and theft. One thing would be losing a wallet with some crypto inside it, however losing an SBT with an entire life's record on it would be far, far worse - akin to a total identity theft with little chance of getting it back.

Ethical concerns

How much of a person's life should be reduced to data? Sure, SBTs offer a rare chance to centralize disparate data and even to empower users to control that data. But putting all that info in one place does raise potential problems. The idea of trust circles comes into play - how much data do you trust others to see?

Soul Possibilities

SBTs could be issued to more than just individuals, in the hypothetical field. A university could have its own SBT, which could issue tokens to other SBTs. A quick glance at a student's SBT would display any educational achievements, allowing institutions to instantly recognize and validate any credentials.

SBTs could also provide an answer to a thorny DeFi problem. Loans in the crypto world are built on collateral, which can limit options for anyone not able to come up with sufficient funds to cover larger loans. Traditional financial institutions solve this problem by using credit reports to determine who is likely to be able to repay a loan down the road; that's how a credit score works. But no such equivalent exists in crypto. SBTs could fill that gap, providing the digital reputation and social credit necessary for uncollateralized lending.

SBTs could also:

  • Make DAO security more robust
  • Improve health records
  • Demonstrate verifiable achievements

SBTs and a More Equitable Society

SBTs could eliminate the need for many of today's centralized institutions: from driver's license to insurance forms, could be processed remotely without the need for centralized databases. An individual's SBT itself would be the database, storing and protecting all their own data.

With fewer centralized gatekeepers, there are less opportunities for discrimination. Decentralization, combined with SBT tokens that let people control their own social identity, should make the new Web3 a far more equitable place. 

Conclusions of Soulbound Tokens: Moving Web3 Beyond Financial Assets

One key part of Vitalik Buterin's paper can’t go overlooked. SBTs aren't meant to be another money-making possibility, like NFTs. The very idea of SBTs is to evolve Web3 use cases beyond mere financial ones. SBTs aren't just the next potential use case. They are the key to a Web3 approach to a fully decentralized society. How will this next use for NFTs affect the ecosystem and the way people interact with the digital world? Nobody can yet tell, but one thing is for sure: society is heading to make everything digital and these use cases exposed above can have a lot of future. 

Macarena López Morillo
Head of People
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