Thread by @cryptodraris

[THREAD] 🧵Soulbound tokens

I read @VitalikButerin latest paper: Decentralized Society (DeSoc).

In this thread you'll find a summary with my main takeaways

papers.ssrn.com/sol3/papers.cf…

#SBTs #Soulbound #Soulboundtokens #NFT #Crypto #NFTs #Metaverse #Ethereum #ETH

Outline of the thread:

1. Context
2. Stairway to DeSoc (use cases)
3. Pitfalls
4. Conclusion

Before we move ahead, some definitions:

- Soulbound tokens (SBTs): a non-transferable but revocable token (by the issuer). These can represent real world credentials, degrees, certificates, and so on.

- Souls: your account/wallet - you can think of it as an identity

1. CONTEXT

#web3 today is too centered around transferring & exchanging financial assets rather than encoding social relationships of trust.

Meanwhile, many core economic activities are built on non-transferable trust relationships.

Because #web3 lacks the primitives to represent social identity, it has become fundamentally dependent on centralized web2 structures:

- OpenSea to verify NFT provenance
- Social media profiles for sybil resistance
- Custodial wallets as a result of difficult key mgmt systems

As a result of this, DeFi ecosystems today are unable to support activities that are common in the real economy, such as undercollateralized lending or simple contracts, like an appartment lease.

This is where SBTs come in

SBTs give Souls credibility by representing their commitments, credentials & affiliations

This allows us to encode the trust networks of the real economy on-chain to establish provenance, reputation and identity.

SBTs are basically your real life credentials issued on chain.

For example, your masters degree issued by your university.

You don't want this one to be transferable, as it is linked to something you and only you have done and earned.

With these primitives, we can form a society centered around native web3 identities with on-chain credentials.

This allows us to unlock new use-cases: undercollateralized lending, decentralized key management and more

According to the authors, SBTs could be the way to unlock a pluralistic ecosystem: a Decentralized Society (#DeSoc)

This is a society where Souls and Communities work together from the bottom-up to agree upon what is best for everyone

2. STAIRWAY TO DESOC

-ARTISTS & NFTs: Souls can be used as a natural way for artists to build their reputation.

SBTs could be used to track his reputation + the provenance & scarcity of an object.

By verifying the SBTs in the artists Soul, you can confirm the Soul belongs to the artist & thus attest that the NFT is legitimate

A verifiable, on-chain way to build reputation on the provenance and scarcity of an object.

This can go beyond art - anything based on trust

- UNDERCOLLATERALIZED LENDING: SBTs could could offer a bottom-up alternative to top-down commercial and “social” credit systems.

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

This would allow Souls to stake meaningful reputation to avoid collateral requirements and secure a loan.

This could open up the door for a wide range of new applications, from better lending algorithms to correlations between SBTs and repayment risk

- CREDENTIALS: SBTs can be rewarded for completing pieces of work or courses to demonstrate expertise in a profession.

This builds an immutable, on-chain reputation which helps people navigate relationships and resourcing in web3.

- COMMUNITY RECOVERY: SBTs can be used to track which communities and projects you participate in.

These relationships can be used to securely verify identity and recover a wallet by “drawing on a maximally broad set of real-time relationships for security.”

Basically, if multiple people from different communities you belong to can prove that you are you, you should be able to recover your keys

- COMPENSATING COORDINATED STRATEGIC BEHAVIOR:

Token sales or airdrops are common in #web3 to incentivize and attract new communities.

Airdrops, however, yield little accuracy or precision, and are easily susceptible to sybil attacks.

This changes with SBTs: "souldrops"

A DAO that wants to form a community within a specific L1 can souldrop to developers who hold multiple conference attendance SBTs or that have SBTs certifying their contribution to the project.

You can reward people based on merit.

- MEASURING DECENTRALIZATION:

Current approaches leave some key open questions: what is the correct resource to measure, how to deal w. partial coordination and what constitutes a “distinct entity”.

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

Using SBTs, protocols have a better way to measure decentralization that captures social dependencies, weak affiliations and strong solidarities.

-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

The emphasis on transferability in web3 has made 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, for example:

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

-Using SBTs to grant data access to researchers

3. PITFALLS

SBTs could be used in dystopian ways too, for example:

- Using SBTs to automate the red-lining of disfavored social groups
- Enforcing restrictive migration policies
- Making predatory loans

However, the authors argue that just like having a participatory government does not inevitably give rise to democracy (it also led to communism and facism), SBTs do not make digital infrastructure inherently democratic.

It is our job to make sure it does.

4. CONCLUSION

Souls & SBTs have the potential to solve many of the problems we are facing today in web3.

Having verifiable credentials on-chain is a BIG DEAL. Having a way to establish trust is important. Having a way to prove your identity is necessary.

With SBTs we have a new design space that will allow builders to innovate by thinking about how we can solve the identity problem & how we can rethink the way we use, consume and profit from relationships

I am excited to see what new innovations we see out of this!

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