The search for NFT utility beyond social media avatars and, at times, questionable, digital art is inspiring many developers to explore the nascent domain of soulbound tokens.
Soulbound tokens (SBTs) are non-transferable NFTs, unlocking non-financial use-cases such as identity, academic credentials, or web3 credit ratings.
On Jan. 22, the team behind the popular NFT collection Pudgy Penguins tweeted it will deepen its adoption of soulbound tokens with its staged rollout of “soulTransport.” The feature will allow Pudgy Penguin sub-communities to issue SBTs to members as rewards or incentives for participation.
“SoulTransport will begin with a limited amount of individuals and clubs, but as we test use cases, soulTransport will become accessible to all,” Pudgy Penguins tweeted. “As we develop new uses for SBTs and their involvement in our digital identity thesis, allowing users to deploy their own SBT is a step in that direction.”
Pudgy Penguins also issued “truePengu” SBTs to NFT holders on the 12-month anniversary of its launch last July. The project then airdropped “penguPin” SBTs to 16 Pudgy Penguin holders in August who licensed the likeness of their NFT as part of a deal with PMI Toys to launch Pudgy Penguin-branded physical toys.
Vitalik Buterin, the co-founder and chief scientist of Ethereum, popularized the concept of soulbound tokens in a January blog post that drew inspiration from the “soulbound” items featured in the World of Warcraft games.
“NFTs are about signalling wealth… but what if we want to create NFTs that are not just about who has the most money, and that actually try to signal something else?” Buterin wrote. However, several projects were already exploring use cases for non-transferable NFTs prior to the publication of Buterin’s blog post, including Proof of Humanity and the Proof of Attendance Protocol (POAP).
In December, Coinbase, the leading U.S. centralized crypto exchange, said soulbound tokens provide the fundamental advantages of non-fungible tokenization by removing the ability for holders to engage in financial speculation.
In November, the National University of Mongolia teamed up with Polygon to issue diplomas on-chain as soulbound tokens.
“In a world where fake diplomas are problematic, it is commendable that NUM, Mongolia’s oldest & most prestigious university, along with the Ministry of Education & Science (MOES) are connecting diplomas with blockchain,” Polygon tweeted.
Buterin also advocated for governance rights to be issued via soulbound tokens, arguing that transferable governance rights are vulnerable to being bought up by “concentrated interests.”
Two-pronged Decision Making
In April, Layer 2 scaling team Optimism said it will use soulbound tokens as part of its “Citizens’ House” governance process. Optimism uses a two-pronged governance system that splits decision-making across a “Token House” and a “Citizens’ House.” The Token House manages “protocol upgrades and project incentives,” and uses traditional token-based governance where each OP token grants its holder a single vote. The Citizens’ House distributes retroactive public goods funding, with governance determined by soulbound token holders.
“We believe that reputation and identity are critical, underexplored components to governance and activity within the Optimism Ecosystem, and crypto at large,” Ben Jones, director at the Optimism Foundation, told The Defiant.
Optimism is focused on building out advanced functionality for its “AttenstationStation,” a protocol that allows developers to build out rich on-chain identity features including soulbound tokens. Jones said the Optimism Foundation is currently using the AttestationStation for its second “Retroactive Public Goods Funding Round (RetroPGF2),” a voting process that will issue grants retroactively to teams building in the Optimism ecosystem.
The foundation issued voting “badges” in the form of SBTs that allow users to vote on which ecosystem projects should receive retroactive funding from RetroPGF2. SBT-based voting is intended to bypass the outsize influence of whales associated with traditional token-based governance systems, with each SBT affording RetroPGF2 participants the same number of votes. Jones said SBT voting badges enable voters to be verified.
“The Optimism Foundation believes reputation-based dApps will play a significant role in the growth of the ecosystem,” Jones continued. “We imagine the first use case for attestations is to create a Sybil-resistant identity that can power non-plutocratic governance. Longer term, we envision this open-source primitive could be used for a variety of Sybil-resistant applications, including on-chain credit scoring and under-collateralized loans.”
Jones added that Op Labs is also working on “Optimist NFTs,” SBT-based reputation tokens featuring profile pictures designed for use across the Optimism ecosystem.
“Where the AttestationStation is the base layer for developers to build identity and reputation-related dApps on Optimism, the Optimist NFT is a soulbound token and profile picture that can be used to help people visualize their reputation accumulated within the Optimism ecosystem,” Jones said. “As people earn attestations, they will be able to unlock new traits on their customizable NFTs.”
Optimist NFTs are currently in beta, with RetroPGF2 voters exclusively able to mint them at this time.