A concept that has gained traction in recent years for managing digital identities and establishing trust in decentralised systems within the Web3 spectrum is undoubtedly the concept of “Soulbound Tokens” (SBTs).
SBTs, introduced in May 2022 by Ethereum co-founder Vitalik Buterin alongside economist Eric Glen and lawyer Puja Ohlhaver, have addressed the inherent shortcomings of non-fungible tokens (NFTs) and similar structures. Their aim is to mitigate the current over-financing within the decentralised spectrum, where governance mechanisms and property rights must be built on trust and cooperation within the framework of the new Decentralised Society (DeSoc) proposed by the authors of the SBT concept.
Let us briefly explore the history, advantages, and growing adoption of SBTs, with a particular focus on their implementation in the ZEUS Perpetual Exchange and other protocols, in the pursuit of building the new DeSoc concept.
The origins of SBTs: A vision for a decentralised society
The idea of Soulbound Tokens was first introduced in the 2022 paper titled “Decentralized Society: Finding Web3’s Soul,” authored by Vitalik Buterin and his collaborators mentioned earlier in this article.
Source: Papers
Although similar in concept and architecture to NFTs, the key differentiating aspect of SBTs is their non-transferability. SBTs cannot be sold or transferred to other individuals or entities and are intrinsically linked to a specific wallet called a “Soul.” These tokens serve as verifiable proof of credentials, affiliations, and achievements.
Thus, SBTs are designed to represent unique aspects of an individual’s or entity’s identity within the new Decentralised Society (DeSoc) concept, enabling the construction of plural network goods at varying scales.
In a DeSoc, each member (or “Soul”) is represented by blockchain markers where SBTs function as credentials, enabling participation in the activities of these types of communities.
Source: Bitazza
With this new technology, the decentralised financial system can become more transparent and build communities of ‘Souls’ based on commitments, credentials, and easily verifiable, self-certified affiliations.
The true power of the concept behind SBTs lies in the mechanism allowing SBTs held by one Soul to be issued or attested by other Souls.
Through SBTs, the trusted custodians typically found in centralised Web2 environments (such as Google, which stores and shares your data with third parties to verify your identity during logins) can now be entirely decentralised. This ensures users retain control over their credentials, guaranteeing a transparent and accountable environment for managing their identity.
Why use SBTs? Key advantages
In the context of building new Decentralised Societies inspired by Buterin’s vision, SBTs offer advantages that extend beyond their utility in traditional systems. For example, Sumitomo Bank recently announced its interest in using SBTs to verify identities.
Source: Coin360 X account
Broadly speaking, SBTs—also referred to by Buterin as non-transferable NFTs—offer the following advantages:
- Decentralised Identity: SBTs empower users by enabling them to manage their digital identities without relying on central authorities.
- Enhanced Security: As non-transferable tokens, SBTs reduce the risk of identity theft or fraud since they cannot be sold or transferred.
- Verifiable Reputation: SBTs serve as immutable records of achievements and affiliations, fostering trust in decentralised networks. This addresses trust issues associated with these Decentralised Societies.
- Community Governance: SBTs can be used in DAOs to allocate voting rights based on reputation and contribution, mitigating Sybil attacks.
- Custom Applications: From academic credentials to professional histories and memberships, SBTs offer versatile use cases. With this verification mechanism, individuals or entities cannot falsify their status or accomplishments.
- Efficiency: SBTs enhance efficiency in the decentralised finance ecosystem by allowing entities to verify credit histories, reducing risks, and improving loan conditions.
The rise of SBTs in decentralised protocols
With the introduction of the ERC-5114 and ERC-5484 standards by the Ethereum community, the adoption of Soulbound Tokens (SBTs) has expanded across the ecosystem, impacting various sectors, including DeFi protocols, Decentralised Autonomous Organisations (DAOs), and decentralised exchanges (DEXs) like ZEUS. These platforms are leveraging SBTs to enhance user functionality and engagement.
Here are some noteworthy examples of protocols and entities currently implementing SBTs:
- ZEUS Perpetual Exchange: ZEUS employs SBTs to anchor user accounts, facilitating on-chain verification and reward systems. SBTs also store trading histories and enable future participation in governance.
- Masa: This real-time data network for AI agents and applications offers a credit scoring programme based on Soulbound Tokens called Masa Credit Score (MCS SBT). In partnership with Cred Protocol, this Web3 credit scoring system allows users’ creditworthiness to be verified on-chain.
- Binance: The centralised crypto exchange giant utilises Binance Account Bound (BAB) tokens as a type of SBT for credential verification for users who have completed the Know Your Customer (KYC) process.
- Aave: Aave’s Lens Protocol employs non-transferable tokens to manage identity and reputation within decentralised social networks.
- Snapshot: This DAO voting tool uses non-transferable tokens to enhance trust and transparency in governance processes.
Why ZEUS adopted SBTs for on-chain verification
ZEUS Perpetual Exchange exemplifies the practical application of SBTs in DeFi. The innovative platform integrates SBTs to enhance user experience and platform functionality.
By embedding SBTs, ZEUS Exchange ensures secure and unique user accounts, fosters user engagement, simplifies trading history management, offers premium features, and lays the groundwork for future governance participation.
A key aspect of SBT implementation in ZEUS is its use in airdrops. The platform distributes rewards transparently and efficiently via SBTs to users who meet specific criteria, such as trading activity or community participation.
This approach ensures that rewards are non-transferable and genuinely reflect contributions to the platform. ZEUS also provides monthly and large rewards for user activity, funded by platform profits, with approximately 25% of total profits allocated to these airdrops.
Source: Zeus Exchange
The use of Soulbound Tokens (SBTs) in Zeus Exchange tackles key challenges:
- Secure Identification: Each user’s account is linked to an SBT, ensuring authenticity and preventing fraudulent activities.
- Reward Mechanisms: SBTs enable precise tracking of user activity and reward distribution, fostering a fair and transparent system.
- Trading History Management: By storing a complete on-chain trading history, ZEUS offers users verifiable records, enhancing transparency.
- Decentralised Governance: SBTs lay the foundation for future voting mechanisms, empowering users to participate in decision-making processes.
The future of SBTs in web3
The advent of Soulbound Tokens represents a significant step towards realising a decentralised society where trust and reputation are intrinsic to blockchain networks.
Their introduction opens up a wide range of possibilities and functionalities that are increasingly being implemented across protocols focused on crypto trading and DeFi in general.
Platforms like ZEUS Exchange demonstrate the versatility of SBTs in addressing challenges related to identity, governance, and engagement. Their adoption is expected to drive the Web3 ecosystem towards a future where digital identity is secure, verifiable, and user-controlled.
The integration of SBTs in ZEUS highlights their potential to revolutionise on-chain verification systems by combining security, transparency, and user empowerment. ZEUS Exchange has pioneered the way for decentralised platforms to leverage SBTs in building trust and fostering community growth.
About Zeus Exchange
ZEUS Exchange is an innovative decentralized exchange that allows both spot and perpetual trading (Perpetual DEX). It solves the airdrop problem with a unique algorithm based on Soulbound Tokens (SBT), ensuring fair token distribution.
Website | Blog | Twitter | Telegram | Discord
Disclaimer: This is a paid release. The statements, views and opinions expressed in this column are solely those of the content provider and do not necessarily represent those of Bitcoinist. Bitcoinist does not guarantee the accuracy or timeliness of information available in such content. Do your research and invest at your own risk.