Soulbound Tokens (SBTs) 101
In May, a paper titled “Decentralized Society: Finding Web3's Soul” was published on SSRN. It takes stock of the virtues and shortcomings of Web3 and provides a sort of roadmap for how to take meaningful, incremental steps towards a brighter, more decentralized future. The paper was co-authored by Glen Weyl (Research, Microsoft) Puja Ahluwalia Ohlhaver (Strategy, Flashbots), and Vitalik Buterin (former contributor, Bitcoin magazine… and co-creator, Ethereum).
The key primitive in the paper is a new type of user account, playfully referred to as “Souls,” that hold publicly visible, non-transferable (but possibly revokable by the issuer) tokens called Soulbound tokens (SBTs).
???? You can think of Souls like a crypto wallet specifically designed to hold SBTs, and SBTs like permanent NFTs that never leave your wallet, unless they are revoked by the issuer.
The concept is so simple that it might seem obvious, but the reason it’s so innovative is that it steps back from the financial capabilities of blockchains and caters instead to the social relationships and contracts that govern our everyday lives. Your university degree, resume, credit score, loans— these sort of assets, contracts, and liabilities are impossible to replicate in Web3 without SBTs in order to guarantee they can’t be transferred. SBTs allow people to build verifiable digital identities based on your actions and experience. Essentially, your soul and all the SBTs within amount to your official, public reputation.
Building Reputation in Games
This innovative new method of verifying and displaying one’s reputation through SBTs opens the door to a number of use cases in gaming.
Achievement trophies & Gamer “credentials”
Console gamers are familiar with achievements on Xbox and badges on Playstation. These types of digital badges are earned by progressing through game levels, completing specific activities, achieving certain stats, etc. These trophies are automatically saved to your profile on the console, but are mostly kept private and ignored. Web3 games could send these sort of trophies to a player’s crypto wallet as NFTs, but gamers would be able to transfer or sell them to someone else, which defeats the whole point.
As SBTs, game achievements would stay with the gamer who earned them, saved in their Soul wallet forever. If and when Soul accounts are integrated into GameFi user ID products, gamers will be able to publicly display their achievements alongside other game NFTs and player stats on their profile.
An Early Example: P12 Soul-Bound NFT Badge
This month saw an early (perhaps even the first) example of a GameFi project implementing these concepts is the Project 12 (P12) Soul-Bound NFT badge drop. The non-transferrable NFT badge could only be minted by STEAM gamers and game devs by linking their accounts to verify their number of hours played, and can not be transferred.
As a web3 game ecosystem, P12’s innovative initiative is an obvious improvement on the “vampire attack” concept, in which a new project airdrops tokens to the users of a more-established competitor as an incentive to try out the new project instead. In a typical vampire attack, there’s nothing stopping the users from dumping the attacking project’s tokens which creates significant sell pressure. But airdropping soul-bound NFTs that cannot be transferred eliminates this risk. The P12 airdrop was extremely successful; a record-breaking 500,000 gamers and devs have received the P12 NFT badge.
Stay tuned for our in-depth analysis of P12, coming soon to the Ancient8 Research Portal.
Number of P12 Genesis Soulbound NFT holders (source: Project 12)
GameFi UID products
A number of builders in the GameFi space including Ancient8 are developing Gamer User-ID products (GUIDs) to provide a dashboard profile that gamers may use to track their progress, stats, NFTs, etc across web3 games. It would be wise for such products to integrate a Soul wallet or the ability to connect one so that gamers, guilds, and anyone else may get the most convenient and comprehensive picture of the user’s reputation, skill level, taste in games, etc.
In a sense, a gamer’s soul wallet will itself be a user-ID across all of web3 (and eventually, real life). Startups like Soulbound.gg are leveraging SBTs to offer “proof-of-play” tokens that reward gamers for completing certain quests within games— they are betting that this will be a valuable proposition to 3rd party retailers who can offer real-world rewards to people who can prove they visited their Metaverse store in Decentraland with an SBT provided by Soulbound.gg, for example.
The Ancient8 team & Scholars at a meet-up in Saigon
SBTs could also be used by Guilds to help manage scholarships. Along with the stats displayed in their Gamer User-ID profile, the SBTs that players collect from games would help Guilds assess a player’s skill level; this would help Guilds find and recruit the most competitive players and also allow scholars to use their credentials and competing offers to negotiate a fair deal.
Also, on a technical level, SBTs could be used to supplement (and perhaps eventually replace) the scholarship contracts themselves. When a scholar accepts the terms of a scholarship and receives the game assets from a guild, they would also receive an SBT to their Soul wallet indicating that they have an open scholarship/contract with that guild. When the the scholarship expires and the scholar returns the assets, the guild can revoke the “open contract” SBT and replace it with a “proof of completion” SBT. This would help guilds and scholars alike, as scholars could build up a verified resume to help qualify them for more scholarships, and provides extra assurance to guilds that the scholar is trustworthy and reliable. It also disincentivizes scholars from rug-pulling guilds, as leaving an open/expired SBT contract in their Soul would naturally disqualify them from initiating any other scholarships. If they tried to abandon that Soul and start a new one, they would have to abandon their reputation and start from scratch. The new Soul would be completely empty, with no SBTs to indicate whether they are trustworthy. Eventually, Guilds will be reluctant to offer scholarships to applicants with empty Soul wallets, and will likely establish requirements for applicants to demonstrate their loyalty / commitment to their community by completing tasks, staking tokens, or simply participating in the DAO in exchange for “proof of task,” “proof of staking” and “proof of participation” SBTs. This offers new members with empty Soul wallet creators a path towards building up their reputation within the community and earning their first scholarship.
Brands and franchises should always reward their loyal customers or fans. This is especially true of games that have built up massive, diehard communities. Gamers deserve to be shown more appreciation from the studios for the time and value they bring to the game, and SBTs can facilitate this. In the future, gamers should be able to receive perks from their favorite games and studios from which they’ve received “proof of purchase” or “proof of play” SBTs. This could be anything from discounts on future titles, to exclusive DLC, etc.
A notable web2 comparison was when Bungie allowed Destiny players to migrate their character builds (minus all the weapons/gear) to Destiny2. If a web3 game uses SBTs instead of NFTs to represent the player’s main character, it could be possible to migrate that character into the game’s sequel— and if the weapons/gear are NFTs, they could even potentially bridge those assets too.
A digital banner advertising the character migration feature of Destiny 2
Building off the previous idea, if web3 games sold game assets as SBTs instead of NFTs, it would eliminate the ability for traders to speculate on those assets. Only people who actually intend play the game would buy them. While this would probably result in fewer funds raised and eliminate all royalty fees from resales, it probably makes sense for games to explore at least a hybrid model in which some assets are SBTs while others are NFTs. For games that are pre-launch, selling SBTs would provide more accurate data about how big the potential player base will be.
Level The Playing Field
Furthermore, replacing NFT game assets with SBTs can also also be used to eliminate the “pay-to-win” dynamic that is commonly loathed by most gamers. High-level gamers will be able to unlock special cosmetics and powerful items that they won’t be able to sell. This greats greater motivation for players to improve their skills and earn those SBT game assets reserved for advanced players.
Artistic represtentation of a decentralized network and Lady Justice
DAO Governance & Participation
Many games are experimenting with the concept of building a DAO for their game’s community, and SBTs are perfect for building better, more decentralized governance systems within DAOs. Instead of basing governance power on how many tokens a member holds, a DAO can issue SBTs with variable amounts of governance points to members based on their contributions to the community. This means voting power is based on reputation, participation, and expertise instead of money (whoever buys/holds the most tokens).
Participation levels are important in DAOs because sometimes the loudest voices are not always representative of the majority of true fans, and might not even be fully informed. DAOs could offer “proof of attendance” SBTs to anyone who shows to meetings and/or participates in the conversation to encourage and reward members for their participation and attention. These SBTs could be worth a certain number of governance points and could be incorporated into rewards for all bounties / tasks that DAO members complete. This would give the most dedicated members a greater voice.
???? These principles have already manifested in the form of “NFT Governance,” which is already being implemented by innovative DAO tool builders like Factory DAO, but we expect SBT Governance will be an improvement on this concept in most cases.
SBTs can also protect the integrity of votes. It’s not always easy to distinguish bots or collusive accounts based solely on the fungible tokens within crypto wallets. But if these were replaced or supplemented with SBTs issued by the DAO, their public and verifiable nature would greatly aid in the detection and banishing of bad actors, and, thus, defend against corruption and sybil attacks. Not to mention, Soulbound token-gating IGOs & NFT sales would help prevent their exploitation by bots for the benefit of community participants.
Web3 principles and blockchain technology are disrupting many aspects of the gaming industry. Souls and Soulbound tokens take an innovative step towards representing and publicly verifying an individual’s reputation, achievements, and skill level, which will have wide-ranging implications for web3 games, guilds, players, etc. While SBTs are still a new concept, developers are already building SBT products that could be ready to use potentially by the end of this year.