Thread by @PastryEth

According to Vitalik, Soulbound tokens (SBTs) are “the future” of Ethereum.

Earlier this month, he co-authored a 37 page paper describing them and their role for Ethereum.

Here’s a TLDR…🧁

Web3 has some problems.

As of today:

-Users still verify collections with centralized platforms like OpenSea

-There is a lack of social scores

-Custodial wallets are still dominant

-Voting rights go to the highest bidder

-There is a lack of incentives to encourage community engagement

-A single user within a DAO can have multiple wallets to accrue voting power

Additionally, Web3 today centers around expressing transferable, financialized assets, rather than encoding social relationships of trust.

Yet, many core economic activities are built on persistent, non-transferable relationships.

However, there is a solution.

Soulbound tokens, and “Souls” have the potential to change everything.

These two models layout the framework for a decentralized society existing solely on-chain.

Let’s go over each of these terms..

Soulbound tokens are non-transferable tokens that are revocable by the issuer.

SBTs can be used to represent commitments to projects, real world credentials, certificates, & much more.

It’s an easy way to bring off-chain attestations to Ethereum.

Next, we have “Souls”.

A Soul is an account or wallet that holds one or more SBTs.

The various SBTs stored within a Soul can can be used to form one’s Web3 identity.

With these two primitives, we can form a society centered around native web3 identities with rich composability.

The future vision of Ethereum described in this paper involves small, incremental advances in the use cases of SBTs..

These steps are referred to as “The Stairway to a Decentralized Society”, which consist of the following:

-Establishing provenance

-Unlocking undercollateralized lending with reputation

-Enabling decentralized key management

-Compensating coordinated strategic behavior

-Measuring decentralization

-Creating novel markets with decomposable, shared rights & permissions

Lets dive into each of these further…

𝗘𝘀𝘁𝗮𝗯𝗹𝗶𝘀𝗵𝗶𝗻𝗴 𝗣𝗿𝗼𝘃𝗲𝗻𝗮𝗻𝗰𝗲

Souls can be used as a natural way for artists to stake their reputation on their works.

When issuing an NFT, an artist can issue it from their Soul.

By viewing the SBTs in an artist’s Soul, buyers can confirm the Soul belongs to the artist, thereby confirming the NFTs legitimacy.

Additionally, artists could issue an SBT in their Soul that attests to the NFT’s membership to a collection & vouches for its scarcity.

Souls would thus create a verifiable, on-chain way to stake and build reputation on the provenance and scarcity of an object.

This can go beyond art. Souls can be used for services, rentals, and any market built on scarcity, reputation, or authenticity.

𝐔𝐧𝐝𝐞𝐫𝐜𝐨𝐥𝐥𝐚𝐭𝐞𝐫𝐚𝐥𝐢𝐳𝐞𝐝 𝐋𝐞𝐧𝐝𝐢𝐧𝐠

In the traditional finance world, undercollateralized lenders use credit scores to determine trustworthiness of a borrower.

In web3 this isn’t possible.

There is no method for establishing reputation for web3 identities.

With SBTs, this all changes.

SBTs that represent education credentials, work history, previous loans, and rental contracts could serve as a persistent record of credit relevant history.

It’s your on-chain identity.

Loans and credit lines can be represented as non-transferable but revocable SBTs until they are repaid and subsequently burned, or replaced with proof of repayment SBTs.

SBTs have the potential to decentralize lending markets.

𝐂𝐨𝐦𝐩𝐞𝐧𝐬𝐚𝐭𝐢𝐧𝐠 𝐜𝐨𝐨𝐫𝐝𝐢𝐧𝐚𝐭𝐞𝐝 𝐬𝐭𝐫𝐚𝐭𝐞𝐠𝐢𝐜 𝐛𝐞𝐡𝐚𝐯𝐢𝐨𝐫

So far, web3 has largely relied on token sales or airdrops to summon new communities.

These airdrops yield little accuracy or precision, and are easily susceptible to sybil attacks.

SBTs offer a radical improvement called “souldrops”.

Using SBTs, a DAO that wants to form a community within a specific L1 can souldrop to devs who hold 3/5 conference attendance SBTs, or other tokens reflecting attendance like POAPs.

This can make up of any arbitrary logic.

𝗠𝗶𝘁𝗶𝗴𝗮𝘁𝗶𝗻𝗴 𝗦𝘆𝗯𝗶𝗹 𝗔𝘁𝘁𝗮𝗰𝗸𝘀

SBTs can mitigate sybil attacks by:

-Conferring more power to Souls who hold more reputable SBTs

-Issuing “proof-of-personhood” SBTs

-Checking for correlations between SBTs held by Souls who support a particular vote

𝗠𝗲𝗮𝘀𝘂𝗿𝗶𝗻𝗴 𝗗𝗲𝗰𝗲𝗻𝘁𝗿𝗮𝗹𝗶𝘇𝗮𝘁𝗶𝗼𝗻

Measuring decentralization is hard.

Existing approaches have trouble determining the criteria that should be measured, dealing with partial coordination, and what constitutes a “distinct entity”.

SBTs enable a different way of measuring the level of decentralization.

Using SBTs, protocols can:

-Limit token voting to reasonably sybil resistant (SBT rich) Souls

-Discount votes by Souls if they share a large number of SBTs

𝐂𝐫𝐞𝐚𝐭𝐢𝐧𝐠 𝐌𝐚𝐫𝐤𝐞𝐭𝐬 𝐖𝐢𝐭𝐡 𝐒𝐡𝐚𝐫𝐞𝐝 𝐑𝐢𝐠𝐡𝐭𝐬 & 𝐏𝐞𝐫𝐦𝐢𝐬𝐬𝐢𝐨𝐧𝐬

So far web3’s scope has been limited to property whose bundle of rights are transferrable tokens

This makes it incapable of supporting simple property contracts, such as apartment leases

SBTs have the flexibility to represent property rights of both physical and virtual assets, while encouraging new experiments

Here are just a few example use cases:

-Permissioning access to privately or publicly controlled resources (homes, cars, parks)…

-Using SBTs to grant data access to researchers

-Holders of SBTs representing membership in a community can quadratically vote on parameters such as incentives and tax rates

-Using SBTs to program economic incentives for provenance-rich data

It is clear why Vitalik thinks SBTs are “the future” of Ethereum.

By making items in crypto Soulbound, they can represent more of who you are and not just what you can afford.

NFTs are your identity and your identity is not for sale

Further reading:
pastry.xyz/supaposts/soul…