- Soulbound Tokens (SBTs) are reputation primitives, allowing for the creation of decentralized applications that incorporate reputation, and would allow for developments such as partially secured loans, community-wallet recovery, or transportable credentials.
- Ohlhaver et al suggest a combination of SBTs and governance could eventually function as a bulwark against the hyper-financialization of web3 (warned against by Nathan Schneider) by creating a “decentralized society.”
- There is some dissent and controversy over the proposed method. Kate Sills, for one, argues that the permanence of SBTs and the subjectivity of their projected use cases (which she calls “claims”) make them an inadequate candidate for a trusted layer on the blockchain.
Are Soulbound NFTs the best way to create a decentralized society capable of resisting the hyper-financialization of web3?
Weyl, Eric Glen and Ohlhaver, Puja and Buterin, Vitalik, “Decentralized Society: Finding Web3’s Soul” (May 10, 2022). Available at SSRN: Decentralized Society: Finding Web3's Soul by E. Glen Weyl, Puja Ohlhaver, Vitalik Buterin :: SSRN or http://dx.doi.org/10.2139/ssrn.4105763
Sills, Katelyn: “Soulbound Tokens (SBTs) Should Be Signed Claims” (June 06, 2022). Available at: Soulbound Tokens (SBTs) Should Be Signed Claims.
We’ll need a trusted layer on the blockchain to grow much larger than we have. Without some index of counterparty risk, for example, it’s impossible to create a decentralized finance (DeFi) product that accurately prices an unsecured loan; without them, DeFi can’t compete with commercial paper or consumer finance. There are countless applications and widespread utility waiting to be unlocked by the adoption of a reputation primitive—in other words, a data object that can accurately represent social proof or a credit score in a smart contract.
In May 2022, E. Glen Weyl, Puja Ohlhaver, and Vitalik Buterin released “Decentralized Society: Finding Web3’s Soul,” which introduced “soulbound tokens” (SBTs) to the Ethereum community. Soulbound tokens build on earlier work Buterin had done on a concept he had adapted from the game World of Warcraft. In that game, certain items are bound to a player and can’t be traded or auctioned off. Soulbound tokens represent memberships, credentials, affiliations or other relationships that are usually publicly visible and non-transferable.
SBTs would be bound to a specific wallet, or a Soul, and might hold tokens representing “educational credentials, employment history, or hashes or their writings or works of art.” Souls would be able to issue tokens, each representing a testament to a particular relationship. Institutions holding wallets would also be Souls and could issue SBTs of their own, signaling proof of attendance or completion or acceptance by a whitelist.
The authors have a grand vision of a decentralized society (DeSoc), a co-determined sociality “where Souls and communities come together bottom-up, as emergent properties of each other to create plural network goods” that would be enabled by broad adoption of SBTs. Like DeFi, organizations require a layer of trust. Consider how many backchannel communications are needed to arrange a successful vote in a decentralized autonomous organization (DAO) for example, or how much politicking goes into the successful execution of an office project.
In “Cryptoeconomics as a Limitation on Governance” (May 2022), Nathan Schneider describes web3 as enabling an economization of everything, forcing every social interaction into a transactional frame and essentially flattening all relationships within a cryptoeconomic system. “To overcome these limitations,” Schneider writes, “designers should envelop cryptoeconomics within a logic of politics capable of seeing beyond economic metrics for human flourishing and the common good.”
Ohlhaver et al imagine SBTs as a bulwark against the same tendency. SBT would enable a staircase of increasingly ambitious applications that would unlock provenance, unlock undercollateralized lending markets through reputation, enable decentralized key management, thwart and compensate for coordinated strategic behavior, measure decentralization and create novel markets with decomposable, shared rights. These components would knit together into a new kind of community, one far more equitable than the one we’re in now.
Kate Sills, an engineer in the blockchain space, takes issue with using “public non-transferable tokens” for this purpose, and suggests a different approach. She worries that the most important of them would be issued by the large institutions that blockchains are intended to bypass in the first place. Permanent trust tokens would empower the issuers. Given that SBTs would be issued in response to a subjective issue—for example, “Are you qualified for a job/airdrop/loan”—Sills argues that using “a statement digitally signed with Ethereum private keys,” which she calls a “signed Claim,” would be a much safer option than using a permanent token.
(0x00931d500eea10DcBD418ea2eBdE3C1DCa86564b) has been a good pet sitter over the past 5 years. By signing, I (0xcf9F9021e2594394b2A9d6115e9cc682d761368f) attest to this statement.
Consider the way reputation works in a real community. Information accumulates and is context-dependent. People accumulate different levels of trust in different areas. These tiny vignettes are also relatively private—i.e., you can choose whether or not to share a story with someone.
The beauty of a Claim is that it’s also context-dependent and private. Instead of creating a permanent stamp of approval or blackmark, the Claim provides a nugget of information. Rather than a permanent mark akin to credit score or a diploma, Claims would only be useful in the aggregate and would be ephemeral in that other Claims could supersede them. They would be private. You could only read a Claim if the signer let you read it. Web2 giants operated by callously hoovering up people’s personal information and repackaging it to marketers and advertisers. With Claims, web3 probably wouldn’t be able to do this. With SBTs, they might.
The problem with Claims as Sill presents them is that they seem like they would drastically limit what could and couldn’t be done in smart contracts. Would a Claim-based dApp be possible or as powerful as a more persistent SBT-based one? Ohlhaver et al’s vision of a DeSoC world might not be possible without persistent and transparent tokens creating a layer of trust underneath.
What do you think? Are there other ways around this divide? Might a differently designed chain with a more developed decentralized identity component be a better solution?
- How does identity persist with Soulbound Tokens?
- Should tokens be revocable and how might that best be implemented, particularly with respect to GDPR?
- What other research should be done when it comes to classifying existing community recovery processes, classifying potential types and parameters of SBTs, etc?
- How might the use cases differ with a privacy-bound claim and an SBT?
- What about other chains/dApps/protocols that have decentralized identity (such as Chia/Civic/Proof of Humanity/Bright ID) and peer-to-peer transfers as architecturally built-in components?
- Which methods/usages must (or must not) be developed to avoid the potential dystopias such as the cold start problem (which could reduce users’ equity and be against the ethos of decentralization)?
- OSF (Nathan Schneider, “Cryptoeconomics as a limitation on governance”)
- Soulbound (Vitalik Buterin, “Soulbound”)
- Scott Kominers and Jad Esber, “Decentralized Identity: Your Reputation Travels With You” (Decentralized Identity: Your Reputation Travels With You | Future)