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What are Soulbound Tokens, and How do they Work?

Author: silvia.zhang Date: August 2, 2023

What are Soulbound tokens (SBTs)?

History of Soulbound tokens

SBTs vs. NFTs

Benefits of using Soulbound tokens

Are there any risks associated with soulbound tokens?

How do Soulbound tokens work?

Use cases of Soulbound token

– NFT ownership

– Job vacancies

– Gaming

– Verification of borrowers’ credit history

– Souldrops

How can SBTs improve the present web3 ecosystem?

What are Soulbound Token (SBTs)

Soulbound tokens (SBTs) are non-transferable digital identity tokens that represent a person or entity’s characteristics, features, traits, and achievements. They are a type of non-fungible token (NFT) designed to store personalized data securely and in a non-transferable way. Here is a breakdown of the topic based on the information I found:

History of Soulbound tokens

Soulbound tokens were proposed by Ethereum co-founder Vitalik Buterin as a way to represent a person’s identity and characteristics on the blockchain. They aim to provide a stronger level of security and control over digital assets.

SBTs vs. NFTs

Soulbound tokens are a specific type of non-transferable NFT. While typical NFTs can be bought, sold, and transferred between individuals, soulbound tokens cannot be transferred to others. They remain in the personal wallet and identity of the owner.

Benefits of using Soulbound tokens

Enhanced security: Soulbound tokens provide a higher level of security for personal data and digital assets.

Identity representation: SBTs can accurately represent a person’s characteristics, traits, and achievements.

Ownership verification: SBTs can be used to verify ownership of digital assets like NFTs.

Data privacy: By being non-transferable, SBTs allow for secure storage of personalized data.

Risks associated with soulbound tokens

While soulbound tokens offer enhanced security, there are potential risks to consider:

Loss of access: If the owner loses access to their personal wallet or identity, they may lose access to their soulbound tokens.

Limited fungibility: Due to their non-transferable nature, soulbound tokens may have limited use cases compared to fungible tokens.

Examples of Soulbound tokens?

One prominent example of soulbound token use case is the Phemex Soul Pass. It’s the first instance of a major cryptocurrency exchange using soulbound token technology for the purposes of community building and decentralization. The Phemex Soul Pass is the platform’s passport into their Web 3 ecosystem, with holders getting early access to the Phemex Token. PSP holders can also become governing members of the PhemexDAO and make decisions on the platform’s growth, operations, treasury management, and collaborations. Since SBTs cannot be transferred, the PSP serves as an indicator of authenticity. Phemex even plans to implement DeFi use cases such as uncollateralized lending, which is made possible through soulbound tokens helping to construct an on-chain credit score system.

How do Soulbound tokens work?

Soulbound tokens are built on a blockchain network. They utilize smart contracts to create and manage the tokens’ properties, characteristics, and features. These tokens are designed to be permanently bound to the owner’s personal wallet and cannot be transferred or exchanged.

Use cases of Soulbound tokens

NFT ownership: SBTs can be used to represent ownership of NFTs, providing a secure and verifiable record.

Job vacancies: SBTs can be utilized in the hiring process to verify candidates’ qualifications and achievements.

Gaming: SBTs can be integrated into video games to represent in-game achievements and assets.

Verification of borrowers’ credit history: SBTs can be used to securely store and verify an individual’s credit history for lending purposes.

Souldrops: SBTs could potentially be used in the creation and management of decentralized autonomous organizations (DAOs) or community-driven projects.

How can SBTs improve the present web3 ecosystem?

Soulbound tokens have the potential to enhance the web3 ecosystem in several ways:

Improved security: SBTs provide increased security for personal data, digital assets, and identity verification.

Enhanced trust and transparency: With their immutable and transparent nature, SBTs can improve trust and transparency in various sectors.

Personalized experiences: SBTs enable personalized experiences based on an individual’s unique characteristics and achievements.

Decentralization: By utilizing blockchain technology, SBTs can contribute to the decentralization of identity management and asset ownership.


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