Soulbound tokens.

Soulbound tokens are permanent, non-transferable and “unsellable” non-fungible tokens. Upon issuance, they live in a wallet (referred to as Souls) permanently. This means that in any case where one’s wallet is compromised, one may lose their SBT. Whilst this is a valid concern for enthusiasts, the SBT idea is new and has room for diverse uses and improvement. In this piece, I discuss three possible use cases for SBTs in Web3.

The most prevalent voting model in all of crypto (and defi) is the "token weighted voting" system. A token weighted voting system is one where the voting power of each voter varies according to the number of tokens held. This is in contrast to a "one-man one vote" voting system. Large token holders can swing proposals their way if they so wish. We saw this happen with the solend proposal to liquidate a certain anonymous whale whose debt position poised a systematic risk to the protocol (and all of the other users). An SBT based voting system would be more democratic as each wallet (referred to as Souls) would be recognised as a single independent voter. The still in development berachain proposes an SBT based voting system with it's BGT token.

Undercollaterized lending:

This refers to a lending situation where the amount borrowed is significantly higher than the amount supplied as collateral. This sort of lending poses a kind of risk referred to as "counterparty risk" which is effectively the probability that one party to the loan agreement (in this case the borrower) fails to fulfil their contractual obligations (pay back the loan as at when due). SBTs have been proposed as a solution to mitigate this risk.

How ?

Current defi lending platforms do not take into account the character of the "person" (lender or the borrower) and there is literally no need for them to since wa

Concluding thoughts:

Soulbound tokens presents Web3 and the wider ecosystem with novel applications and use-cases. They also provide existing protocols with newer and more effective use-cases. Although still relatively new, we could see SBTs become a core part of how we interact with Defi protocols and centralised exchanges, and could see them usher in an iteration of reputation systems in Web3 and crypto in general.