NFTs 2.0? When Will Soulbound Tokens Arrive?
Think back to May of 2022. Spring is here, the NFT100 is a month away, and Ethereum Co-Founder Vitalik Buterin just made a huge announcement: Soulbound Tokens (SBTs). The idea — which came via a white paper entitled “Decentralized Society: Finding Web3’s Soul” — inspires “oohs” and “ahhs” throughout the metaverse. That same month, the paper’s co-author E. Glen Weyl states that early uses of SBTs may be available by the end of 2022.
Yet, fast forward to January 2023, and where are all these early use-case SBTs to be found? Did the NFT space glaze over this potentially paradigm-shifting technology in favor of more Bored Ape derivatives… again? Or is there simply a lack of infrastructure to create SBTs in the first place? Maybe both, or maybe neither — because SBTs are here, but they are still far from their final form.
What are Soulbound Tokens?
In plain terms, Soulbound Tokens are NFTs that are non-transferable, making them ideal for managing permanent records (versus storing documents in your safe deposit box). But taking over paper records is only a single function of these NFTs. Because according to Buterin’s paper, SBTs will function as a comprehensive suite of tools for online users to preserve and protect their identity.
Over the past year, it’s become common sentiment that, should SBTs be adopted as originally planned, they stand to impact our everyday lives significantly. Through SBTs, medical records, academic achievements, alumni status, employment histories, criminal records, and everything in between can be minted as an NFT with immutable and non-transferable ownership. This could be especially useful for healthcare administrators and hiring managers. But so far, SBTs have yet to reach the outside world.
Where Soulbound Tokens currently stand
While SBTs have yet to be adopted into mainstream society (or NFTs, for that matter), there are still current Soulbound efforts coming to fruition on the blockchain. Not in droves, as some may have imagined after the initial white paper release, but a select few have taken it upon themselves to help usher in a new phase of Web3 identity.
One such venture aiming to innovate within this burgeoning sector comes from MoonPay. In 2023, the company, helmed by CEO Ivan Soto-Wright, is poised to help define the potential of SBTs in our current blockchain climate by launching the Web3 Passport. Billed as a “next-generation loyalty and rewards program,” the passport will grant holders guaranteed access to exclusive experiences and products from MoonPay partners and other leading brands and creators. This Soulbound NFT offering could prove to be especially beneficial to Web3 brand building.
But of course, MoonPay is a single player in the quickly growing SBT game. While it could potentially be the most NFT-native SBT offering on the horizon (apart from an adjacent Pudgy Penguins endeavor), other entities have begun breaking ground on Soulbound projects that aren’t necessarily dependent on NFT tech or culture. From the Tenora blockchain planning to go Soulbound in the future to Crypto VC LongHash pondering an SBT reward system, and even a collaborative undertaking from MetaMask, Cobo, and Gnosis Safe in the works, organizations from a variety of sectors have expressed interest in Soulbound Tokens.
Even so, considering how fresh the concept of SBT is, the practicality of the new type of token may still be at large. While real-life SBT applications — like tokenized diplomas from the National University of Mongolia and potential SBT trials launching via Japanese banking giant SMBC — have shown that Soulbound Tokens have every incentive to venture away from Web3 nativity, they still feel like a novelty that falls short of communicating the full potential of SBTs.
The issue of infrastructure
Perhaps this perceived shortcoming is more an issue of form vs. function, though. Currently, there are few methods through which NFT issuers can provide safe, usable non-transferable tokens at scale. Considering the constraints of SBTs as outlined by Buterin’s white paper (that SBTs might not be achievable until we’ve entered into a decentralized society where everyone has a “Soul” wallet), those hoping to launch SBTs must first create infrastructure and protocol that would grant SBTs function. Either that or place their bets on a chain or platform to do so for them.
This is precisely why some, like Masa Finance, are already tackling technological roadblocks head-on. With Masa’s January 2023 Ethereum mainnet launch, the company sought to empower users to mint a variety of Soulbound Tokens — including Soulbound Identity SBTs, Web3 credit reports, and unique .soul domain name NFTs — on its own unique platform, which centers around a decentralized credit protocol.
Although the release was indeed a big step forward for digital identity, and one that has opened the door for Masa to start adding biometric authentication, multi-level permission, and Web3 loan capabilities to its protocol, it’s also an achievement that Masa Co-Founder Brendan Playford admits cannot exist in a vacuum.
“It’s tough going to market with an identity protocol where the first use case is credit. The biggest problem identity protocols have is cold starting. If you don’t have something someone can use their identity for, you’re not going to track those first users,” Playford said in an interview with nft now.
A staunch believer in SBTs to drive mainstream adoption, Playford may have hit the nail on the head in discussing the current issues with bringing the tokens to market. In addition to the lack of infrastructure available to really make SBTs work at scale, if investors and consumers can’t immediately see how Soulbound Tokens could be useful, it begs the question of why they would want to mint and hold an SBT in the first place.
Wen mainstream SBT adoption?
So, when might we see the increasingly elusive use cases of SBTs become a major part of the NFT ecosystem? The answer is anything but straightforward. Because while the benefits of SBTs seem to outweigh the caveats, it’s anyone’s guess as to when a decentralized society might become a feasible reality.
For now, movers will likely continue to seek out new and novel ways to utilize SBTs, slowly laying the foundation for them to become pertinent in the next market cycle or the one after that. Of course, Masa and MoonPay’s SBTs will bring value to the NFT space and Web3 at large. But until major financial, medical, and educational organizations (and the like) are ready to replace antiquated credentialing models with a more immutable and effective system that could be possible through SBTs, the true utility of these tokens cannot be realized.
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