Key points
- A soulbound token (SBT), or non-transferable token, is a type of NFT issued as a single instance and permanently tied to one blockchain address.
- An SBT cannot be transferred or sent to another blockchain address. It is minted only once, and only the address owner can access it.
- Non-transferable tokens are part of Web3 technologies and act as a connective element between users, blockchain services and DAOs.
- Although real-world uses of SBTs are still scarce, in theory they could become a popular way for holders to prove identity or other facts.
What is a soulbound token (SBT), in simple terms
A soulbound token is a non-fungible token created for a single address, with no ability to move or sell it. Such an NFT grants its holder unique rights and abilities. It can attest that certain conditions have been met, serve as proof of membership in a community, or certify a user’s unique status.
The idea of SBTs belongs to Ethereum founder Vitalik Buterin, who first set it out on his blog in January 2022. He drew attention to the practice in World of Warcraft of issuing rare items that can belong to only one player. He proposed applying the same principle to NFTs: an NFT can be minted for a specific address and should remain permanently tied to it.
To obtain such a token, a user may need to meet certain conditions or complete tasks. In return, an SBT may confer unique functionality or privileges. For example, a soulbound token could serve as proof of a diploma or course certificate, or as an “admission ticket” to a club or community.
Buterin developed the idea further in a paper titled «Decentralized Society: Finding Web3’s Soul» (“Decentralized Society: Finding Web3’s Soul”), published in May 2022 with economist and social technologist Glen Weyl and lawyer Puja Ohlhaver.
The paper describes a model for a new decentralised digital society, creating an analogue of China’s “social rating” and “digital karma” — all based on Web3 technologies, blockchain and non-transferable tokens.
Examples of soulbound tokens (SBT)
As an example of SBTs, the same publication cited the POAP project, which issues exclusive NFTs to participants in themed events. Adidas ran one such drop, releasing a collection of POAP tokens in November 2021.
The company later used these tokens to grant access to an NFT collection created in collaboration with Bored Ape Yacht Club (BAYC), GMoney and PunksComic. Buterin noted a flaw in POAPs: they can be resold.
In September 2022, the first non-transferable token on BNB Chain was issued by the Binance exchange, called Binance Account Bound (BAB). Any user who has completed identity verification (KYC) on the platform can create a BAB. The SBT is then bound to the address and serves as an attestation that can be recognised by third-party applications. If desired, the token holder can burn it and reissue it after 72 hours.
Potential uses of soulbound tokens (SBT)
SBT technology has yet to see broad uptake in crypto. Possible applications are outlined in the paper by Buterin, Weyl and Ohlhaver mentioned above.
Social rating and lending
In future it may be possible to obtain a loan based on social rating and reputation. This could be recorded numerically in an SBT, serving as an indelible way for a borrower to prove credit history. Specialised SBT-based products may also emerge in DeFi applications.
DAOs and communities
An SBT can form part of governance mechanisms in decentralised autonomous organisations (DAOs). One such use of SBTs has already been proposed for the Ethereum-based Layer 2 network Optimism. Under the proposal, non-transferable tokens could serve as access keys to separate DAO “chambers”, each with its own functions and constraints.
Airdrops and marketing
Soulbound tokens enable more fine-grained targeting of airdrops — a popular way to reward and activate communities by distributing cryptocurrencies. SBTs can also be used for other marketing activities, as Adidas demonstrated by using soulbound tokens as a “VIP ticket”.
Proof of ownership
Creators of digital art and content can issue SBTs as certificates of authorship for collectors and ordinary buyers. This use is not limited to art and can apply anywhere identity must be confirmed — for example, diplomas or property titles.
Identity verification
Using soulbound tokens can simplify access to DeFi products and Web3 services. A user can verify identity once in one application, issue an SBT as proof, and use it across any other applications that recognise such verification.
Risks of using non-transferable tokens (SBT)
Using cryptocurrencies and blockchain applications entails a host of risks, including hacks, theft of personal data, protocol bugs and simple user error.
Alongside possible benefits, soulbound tokens may introduce risks whose scale remains unclear. One risk is a deliberate compromise of the address to which an SBT is bound, enabling impersonation of the owner.
Uncertain and novel risks include attacks on user privacy and misuse of social rating systems, communities and DAOs built on or using non-transferable tokens.