What are Soulbound Tokens?

Soulbound tokens (SBTs), also known as "Proof of Belonging" tokens, are a type of cryptocurrency that are tied to a specific individual or entity and cannot be transferred to another person. This means that the token is permanently linked to the owner and cannot be sold, traded, or transferred to another person.

The concept of soulbound tokens was first introduced in the gaming industry as a way to ensure that in-game assets could not be sold or traded outside of the game. The idea was that players would have unique, untransferable items that they could use within the game and could not be traded or sold to other players. This ensured that the value of the in-game items remained within the game, and prevented the exploitation of loopholes and scams that could ruin the player experience.

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.