What are Soulbound Tokens? SBTs, NFTs and Web3 Explained

Last Updated: October 16, 2022
What are Soulbound Tokens?

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What are Soulbound Tokens? Soulbound tokens (SBTs) are the future of Web3. They can’t be transferred once received and are held in a wallet indefinitely. In this article, Coinbound explains the basics of SBTs, how they’re different from NFTs, why they’re needed and how to launch your own SBT.

What is an SBT (Soulbound Token)?

Soulbound Tokens (SBTs) are a new type of blockchain-enabled protocol representing non-transferable commitments, credentials, and affiliations of holders.

Soulbound tokens were first mentioned in a paper published by Vitalik Buterin and others on May 11th, 2022. In the paper, Buterin et al suggest that, until now, Web3 focused on “transferable and financialized assets, rather than encoding social relationships of trust”.

The proposed token standard is a means of allowing Web3 users to better verify trust in each other.

How are SBTs different than NFTs?

Soulbound tokens are similar to Non-Fungible tokens (NFTs) in that they are unique, however, they have some key differences regarding transferability.

The biggest difference between SBTs and NFTs is that they can’t be bought, sold, or traded.

Because SBTs can’t be bought, sold or traded like NFTs, they are best used in situations where a holder must verify they have completed some task (like getting a college degree or working at a particular company).

Related: Are Soulbound Tokens (SBTs) the New NFTs?

What are some examples of SBTs?

Popular examples of Soulbound Tokens include academic degrees, non-expiring certifications, and professional references.

For example, instead of a hiring manager contacting a previous employer or school to verify your enrollment, they could simply ask to see the Soulbound Token you received upon graduation or departure from that company.

Why are SBTs needed?

There are a number of reasons that prompted the creation of SBTs.

The largest driving factor in the creation of SBTs was the limitations of NFTs. Some of the limitations proposed by the SBT architects include:

  1. Most NFT creators rely on centralized platforms to commit to scarcity and initial provenance.
  2. DAOs the move to complex voting mechanisms must rely on Web2 infrastructure like social media profiles for Sybil resistance.
  3. Most existing Web3 users rely on custodial wallets managed by centralized entities (like exchanges). Existing key management systems are not beginner-friendly.
  4. Existing Web3 infrastructure lacks identity capabilities.

On the note of point 4, the creators believed real-world activities such as undercollateralized lending or simple contracts (like signing an apartment lease) are not possible without the ability to use some form of decentralized social identity.

How can I launch an SBT?

Because SBTs are so new, the best bet is to hire a professional team with strong experience in Web3. We recommend reaching out to Coinbound, a leading Web3 agency with strong SBT knowledge.

Want to learn more about SBTs? Check out this video!

What Are Soulbound Tokens? | SBTs Explained

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