The year 2020 could easily be designated as the year of NFTs. Everything including monkeys, pixelated images, dogs, cats and pandas were selling like hot cakes. Even the JPEG of the first tweet by Jack Dorsey was sold for $2.9M.
But the winter hit the NFT market space sooner than not. A few days ago someone tried selling the very same NFT of Jack Dorsey’s tweet and met with a brutally cold response. The highest bid received for the NFT was $280. Yes. That’s a 99% drop. But why am I talking about all this? Sadistic pleasure? Maybe!
While we all thought that NFTs were a thing of the past (at least the ones which offer no utility), the big brained folks at Ethereum foundation had a rather specific twist to offer.
Recently, when people donated crypto to fund Ukraine’s efforts in the uncalled war, Vitalik went on record to say that crypto is beyond monkey JPEGs and the real use cases of the technology lie elsewhere.
And soon after that, he came up with a concept of SBTs or Soul Bound Tokens. So today, I would try to decipher a few reasons he decided to come up with a brand new token standard.
What are Soul Bound Tokens or SBTs?
Soul bound tokens are a new standard on Ethereum Blockchain that would be rolled out as early as the end of 2022. When I say standard, think of it as a highway to run specific types of vehicles. For eg. ERC 20 is a standard. It is meant to create/exchange tokens that support EVM. ERC 721 is another standard which aims to support NFTs.
Coming to the non tech part of it. As per the whitepaper, SBTs can be defined as
“Our key primitive is accounts, or wallets, that hold publicly visible, non-transferable (but possibly revocable-by-the-issuer) tokens. We refer to the accounts as “Souls” and tokens held by the accounts as “Soulbound Tokens” (SBTs).”
In essence, SBTs are types of NFTs which are non transferable in nature.
“What? Does it even make sense? How am I going to flip stoned monkeys and dogs to make a fortune like that 11 year old you told me about?”
Well, that is primarily the reason this new standard is introduced. I think NFT hype has to mellow down to pave the way to unleash its true potential. Now think of your college degree being issued as an SBT. Of course you won’t transfer it (Hopefully).
Same goes with any kind of social credentials like certifications, courses, conferences attended etc. Possibilities are endless.
Vision Behind SBTs:
Okay, I get it. But then isn’t it just an NFT with some additional conditions? Why is there so much noise around it? Well, it turns out that I had the same questions in my mind before going through the whitepaper. And here’s what I think:
Time and again web3 influencers would say that NFT is a really powerful technology. But the world would be let down, yet again, because of bizarre use cases like this.
I think with the advent of SBTs, an attempt is being made to create a separate standard for utility based tokens. This would separate all the PFP projects and worthless crap from the real meat.
But what would we achieve out of it? Let’s dig deeper.
Vitalik envisions a decentralized society where individuals are carrying a native web3 identity with some credentials attached to it. Through DeSoc, some inherent problems with the existing ecosystem, like concentration of wealth and voting power, could be solved for.
C. Power concentration:
It looks like DAO is an answer to the democratic decision making in an organization. However, the voting power is gained by investing in the tokens. What if some wealthy individual buys a sizable sum to influence decisions in his/her favour?
You could implement the ‘one-wallet-one-vote’ rule but then someone could create multiple wallets to manipulate the system.
But what if you could tag the votes with certain credentials. For eg. People who have certain certifications have higher weightage. Things could rather change from thereon.
D. Undercollateralized Lending:
Currently, it is very difficult to gauge the interaction of an individual with various protocols. As a result, the only way lending works in this space is through overcollateralization. But traditional finance manages to offer a wide array of products that could help an individual with undercollateralized lending.
SBTs could attach a persona with an individual thus helping the protocols gauge their decentralized credit score. Imagine getting a loan at a cheaper price because everytime you repay on time, SBT is issued to your wallet, increasing your credibility.
E. Losing your Soul:
Another problem with the existing ecosystem is the fact that a person is not able to retrieve their wallet if they somehow lose the keys. SBTs are trying to solve this problem by providing an infrastructure wherein you could nominate a few trusted wallets which can help you regain the access to your account.
How Does it Impact Me?
Well, turns out that this is a great step towards driving real value from NFTs. However, some may argue that it is just old wine in a new bottle. And as always, time will be its greatest judge. What do you think?
Let me know in the comments section below. If this article adds value to your life, please consider sharing it with your friends using the links below.
Until next time..
I don’t know about the future of SBTs, but I know for a fact that EPNS has a really bright future.
Push Protocol is a decentralized communication protocol for Web3! Using which any dApps, smart contracts, backends or protocols can send comm (starting with on-chain / off-chain / gasless notifs) tied to user wallet in an open, gasless, multichain and platform-agnostic fashion. The open comm layer allows any crypto wallet/frontend to tap into the network and get the comm across.
This post is sponsored by Push Protocol.
For our beloved “non readers”, I also do quick carousels on these topics over Instagram. Come join the fun. Hit me up here.