Identity-Linked Tokens: Understanding Soulbound Tokens

Summary Soulbound Tokens represent verifiable digital credentials on the blockchain, distinct from traditional NFTs for being non-transferable and focused on personal reputation rather than monetary value. They function as identity assets issued by entities (Souls) and stored in specialized wallets.

The Origin of the Decentralized Vision

In May 2022, Vitalik Buterin ( co-founder of Ethereum), Puja Ohlhaver, and E. Glen Weyl published a manifesto titled “Decentralized Society: Finding Web3's Soul.” The document articulated the need for a new decentralized Web3 societal model, where trust and reputation relations would replace traditional verification mechanisms.

Beyond the Common NFT Concept

Unlike conventional NFTs — which function as tradable certificates of ownership — Soulbound Tokens operate under a completely different logic. While a Bored Ape Yacht Club represents a digital asset with market value and can be traded, an SBT remains permanently bound to its original wallet, with no possibility of transfer.

The inspiration comes from the gaming universe: in World of Warcraft, “soulbound” items remain eternally linked to the player's character, impossible to be sold. This same mechanic, applied to Soulbound Tokens, creates an immutable and personal record.

How They Work in Practice

Each SBT is issued by a qualified entity (called “Soul”) — which can be a university, company, hospital, or any trusted institution. The token holder, also referred to as “Soul”, receives and stores these credentials in their blockchain wallet.

A person can hold multiple Souls for different aspects of their life:

• A professional Soul with a history of jobs and certifications
• An educational Soul with completed diplomas and courses
• A medical Soul with health records

This segmentation allows each sphere of life to be documented independently and verifiably.

Real Applications in Development

Education and Qualifications – Universities issue SBTs at the end of academic programs. The token proves completion of courses, qualifications acquired, and institutional affiliation, replacing physical certificates with permanent records on the blockchain.

Job Market – Candidates present their professional history through SBTs issued by previous companies. Each position held is documented in a verifiable manner, eliminating resume falsifications.

Health Records – Patients share medical history with new professionals immediately. The bureaucratic process of requesting documents, verification, and multiple phone calls is drastically reduced.

The Role in Governance and Trust in Web3

Trust remains a central challenge in decentralized systems. Soulbound Tokens offer a solution: in DeFi loans, for example, an SBT can record the history of debt repayment and user risk metrics — functioning as a decentralized credit score system.

For Decentralized Autonomous Organizations (DAOs), SBTs revolutionize voting. Instead of voting power based on the number of tokens held, DAOs can issue SBTs that grant voting rights according to the member's reputation and engagement with the community. This model benefits loyal and reputable participants.

Most crucially, Soulbound Tokens combat Sybil attacks — schemes where malicious individuals buy a majority of governance tokens to manipulate proposals. The public and verifiable nature of SBTs allows for the detection and blocking of malicious agents before they compromise the integrity of the DAO.

Emerging Implementations

Although still in experimental stages in 2022, prototypes began to emerge. A certain trading platform launched its own model: a non-transferable token, without monetary value, issued on the BNB Chain. Its function was to validate the identity of users who completed KYC verification, serving as a digital verification tool applicable to external protocols for airdrops, bot control, and enhancement of governance systems.

Future Perspectives

Soulbound Tokens represent a significant conceptual shift: from a Web3 model focused on the transfer of assets to a model centered on verifiable reputation. If implemented on a large scale, they will function as the blockchain equivalent of traditional identity documents — transforming how we prove our credentials and history in the decentralized digital space.