SBT's Potentials and Challenges

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From the series: Demophronesis

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In my previous article, I introduced the basic concept of DeSoc (Decentralized Society) proposed by Vitalik et al. This time, I would like to focus on the current state and challenges of SBTs (Soulbound Tokens), which are considered the core technology of DeSoc.

While SBTs have the potential to establish 'trust' as a new value in digital space, their implementation comes with many challenges. Let's consider what specific changes SBTs could bring to our society and what obstacles might hinder their realization.

The Possibilities SBTs Open Up for Web3

Web3, which excels at expressing financial transactions and asset ownership, has produced many new mechanisms such as cryptocurrencies, NFTs, and DeFi. However, despite these advancements, there is a crucial missing element: the inability to properly express "social trust" and "human relationships."

For example, DAOs (Decentralized Autonomous Organizations) are typical applications of blockchain, but voting rights are often designed as tradable tokens. As a result, vote manipulation for economic gain becomes possible, creating a situation where essential trust relationships between participants are difficult to develop.

Ironically, many current Web3 projects depend on Web2-like centralized platforms such as X (formerly Twitter) and Discord for community building and interaction. This is because blockchain itself does not yet have mechanisms to express relationships and trust between people.

This lack of "social ID" is a major constraint on realizing Web3's potential. For instance, it is extremely difficult to implement unsecured loans or credit-based contracts—common in traditional economic activities—on the blockchain. In the DeFi world, due to high anonymity, lenders cannot judge borrowers' repayment ability or reliability, resulting in the need for excessive collateral.

SBTs were conceived to address these fundamental challenges. They represent an attempt to use non-transferable and non-tradable tokens to record individual identities and social relationships on the blockchain. The new social structure enabled by this mechanism is what Vitalik and his coauthors call DeSoc.

Soul and SBT as Pseudo-Embodiment

Soulbound Tokens, as the name suggests, are tokens linked to specific individuals (Souls) that cannot be transferred or traded. Unlike traditional NFTs, which are traded for economic value, SBTs are simply "possessed" and are not objects of economic transactions.

What does this "non-transferability" bring to digital space?

Our existence in the real world is based on our bodies, which cannot be transferred. These bodies are fragile and vulnerable, and once damaged, not easily repaired. They are also always positioned in specific times and places. This forms the very foundation that requires and enables us to keep promises, fulfill responsibilities, and build ongoing relationships. In other words, because our bodies have constraints that prevent them from being exchanged or transferred, our identities have concrete contexts and relationships, enabling them to become the foundation of social trust.

In contrast, identities in digital space are highly fluid. Accounts can be freely created, abandoned, and transferred, and this freedom makes it difficult to build trust relationships that involve responsibility and continuity. Issues such as anonymous trolling and ambiguous responsibility online are the flip side of this fluidity.

SBTs can be interpreted as an attempt to introduce a kind of "pseudo-embodiment" into digital space. SBTs, which are linked to specific Souls and non-transferable, constitute a person's continuous digital identity and guarantee the consistency of "being oneself." This becomes the foundation for building continuous responsible behavior and trust relationships online.

SBTs Are Not a Silver Bullet

However, there are clear limitations to this pseudo-embodiment in digital space.

Trust relationships in the real world are formed through complex interactions of non-verbal elements that cannot be fully expressed through text or numbers. Facial expressions, tone of voice, attitude, and behavioral patterns are deeply rooted in our embodiment and play fundamental roles in establishing this social trust. SBTs can record formally provable aspects such as educational background, work history, and community contributions, but they cannot express these non-verbal elements.

The pseudo-embodiment that Souls and SBTs can reproduce in digital space is only a small part of the multifaceted nature of actual embodiment. SBTs are non-transferable, but they are not designed to reproduce other crucial characteristics such as the "vulnerability" or "irreparability" of the body. Moverover, Souls can be abandoned, and it is possible for individuals to have multiple Souls. In other words, the pseudo-embodiment of Souls and SBTs provides only a limited expression of embodiment, making it difficult for them to fully replicate the role that our physical bodies play in forming social trust.

Souls and SBTs allow us to reimagine the relationship between "self" and "other" in digital society. With a clear recognition of their potential and limitations, we need to ask ourselves: How should we implement these new mechanisms, and what protocols and supporting elements of the ecosystem do we need to develop alongside them? Furthermore, how will our trust relationships as we know them be transformed by these new developments? Exploring these questions invites us to stretch our imagination and embrace creative thinking.

Potential Applications and Practical Challenges of SBTs

Let's now overview the specific potential applications of SBTs and the practical challenges that come with them.

Certification of Education and Qualification

Opportunities:

By issuing university degrees and professional qualifications as SBTs, individuals can proactively manage their credentials and share and validate them to third parties as needed. By making credentials non-transferable, SBTs create a natural safeguard against qualification fraud.

Furthermore, SBTs facilitate the implementation of more granular recognition of abilities by subject or skill (micro-credentials). They can also be issued for non-formal abilities and qualities (such as cooperation, leadership, and community contributions), making it possible to document and verify capabilities that have traditionally been difficult to demonstrate. Together, these features enable the development of more flexible and diverse evaluation systems that extend beyond conventional credentials.

Challenges:

The challenge lies not so much in the issuance of SBTs themselves but in how to ensure the reliability of the issuing entities. As diverse types of SBTs emerge—covering everything from micro-credentials to non-formal abilities—we need reliable ways to assess their credibility. This will require developing both credential rating systems and reputation frameworks that evaluate the trustworthiness of SBT issuers themselves.

Web3 communities and decentralized identity (DID) projects are already addressing this challenge. Systems like Gitcoin Passport and various 'Issuer Reputation' mechanisms provide frameworks for evaluating the trustworthiness of credential issuers. These trust mechanisms are essential stepping stones toward making SBTs practical—they help users quickly determine which credentials come from reliable sources.

Community Certification

Opportunities:

SBTs can serve as digital records of community contributions, from open-source code commits to local volunteer work. By making these previously hard-to-verify activities visible and verifiable, SBTs help ensure diverse forms of community involvement receive proper recognition and value.

Challenges:

Communities have different values and standards, so we need protocols that let each group maintain its unique evaluation criteria while still recognizing assessments from other communities. Think of it as a network where communities speak different languages but can still understand each other's credentials.

Community evaluations inevitably involve some subjectivity, which can lead to unfairness. The solution isn't static ratings but dynamic ones that evolve based on ongoing contributions and behavior. Of course, we need to strike a balance—making evaluations too frequent or complex would burden evaluators and turn a helpful system into an administrative nightmare.

There's also the risk that community certifications might simply reinforce existing social advantages. People with money, connections, and social capital could receive better evaluations, essentially recreating the same inequalities SBTs aim to address. To prevent this, we need to carefully design transparent, fair evaluation systems that give everyone—regardless of background or resources—an equal opportunity to build and demonstrate their contributions.

Unsecured Loans

Opportunities:

Traditional credit scoring systems often exclude minorities and lower-income individuals who lack conventional credit histories. This creates a significant barrier to financial access for many people.

SBTs offer a promising alternative. They can cheaply and efficiently document financial activities that traditional systems overlook—small loan repayments, community contributions, freelance work, side hustles, and professional skills. By capturing this richer picture of a person's trustworthiness and capabilities, SBTs could enable new forms of unsecured lending that don't rely on traditional banks or credit bureaus. This could dramatically expand financial inclusion for underserved communities.

Challenges:

Of course, any reputation system can be gamed. People might try to falsify or manipulate their credentials, which means we need robust safeguards. These include reliable evaluation entities, transparent methods, and ways to quickly revoke fraudulent credentials when discovered.

Another concern is the "permanent record" problem. If negative credit events are recorded forever as SBTs, people who make mistakes could be perpetually locked out of financial opportunities. To address this, several approaches are being considered:

• Allowing negative records to gradually "fade" after a certain period

• Creating low-risk opportunities like microloans to rebuild credit

• Looking beyond repayment history to consider community involvement and alternative economic activities when evaluating creditworthiness

By balancing opportunity with appropriate safeguards, SBTs could help create a more inclusive financial system while maintaining necessary protections.

Protecting Against Sybil Attacks

Opportunities:

One of SBTs' most powerful features is their ability to combat Sybil attacks—where someone creates multiple fake identities to gain unfair influence in a system.

Since SBTs can't be transferred between accounts, they create unique "relationship fingerprints" that are hard to fake. When you analyze how SBTs are issued and held across different wallets, patterns emerge. Legitimate users typically have diverse, organic connections that develop naturally over time. Fake accounts created by a single person, however, show telltale similarities and unnatural patterns that statistical analysis can detect.

This capability is especially valuable in DAO governance, where Sybil attacks could otherwise concentrate voting power in the hands of a few individuals using multiple identities. Systems can further strengthen their defenses by giving extra voting weight to accounts with verified credentials or robust reputation scores—making it even harder for attackers to gain significant influence.

By making digital identity more authentic and relationship-based, SBTs help ensure that one-person-one-vote principles actually work in decentralized systems.

Challenges:

Here's the challenge, though: DeSoc actually allows people to have multiple Souls for different purposes—like separating your professional and personal identities. This creates a tricky problem: how do we tell the difference between someone legitimately using multiple identities and someone trying to game the system?

The community is working on several approaches to strengthen Sybil resistance. These include:

• Incorporating off-chain social connections to verify identity

• Evaluating a person's depth of engagement within communities

• Implementing layered authentication processes

• Creating mechanisms to quickly revoke credentials when fraud is detected

While these ideas show promise, no complete solution exists yet. The balance between flexibility and security remains an ongoing challenge for DeSoc systems.

Decentralization of Political Capital

Opportunities:

Vitalik and his colleagues focus on how SBTs build social capital—the networks of relationships that create value in communities. But I see another powerful application: transforming how we express and track political power.

Political capital—our ability to influence collective decisions—hasn't been technically formalized the way economic or social capital has. Traditional voting systems reduce our political expression to occasional yes/no choices that poorly capture our complex preferences.

SBTs could change this fundamentally. Imagine a political system built on the Soul framework, where your identity and credentials are secured by SBTs, while your political influence flows through specialized delegable tokens. Instead of casting a single vote once every few years, you could:

• Delegate your political tokens to representatives, interest groups, or policy organizations

• Track how your chosen representatives further delegate the collective influence they've received

• Withdraw your support if you disagree with their delegation choices

• Reassign your political capital as your priorities change

This creates a multi-layered democracy resembling how capital flows through financial systems. Representatives could aggregate support from constituents and then further delegate it to specific policy initiatives or committees. Interest groups could accumulate political capital from their members and deploy it strategically across multiple issues. This network of delegation would make visible the actual pathways of influence, revealing how political capital concentrates and flows.

Your political preferences wouldn't be flattened into a single ballot choice—they could flow through a complex ecosystem that better reflects how influence actually works in political systems. Representatives would function more like political capital managers, accountable for how they redistribute the influence entrusted to them.

This vision goes far beyond adding blockchain to voting machines. It's about creating a political economy that maps and formalizes the currently invisible flows of political influence, using the secure identity foundation that SBTs provide.

Challenges:

Political capital tokens won't work in isolation. They need a complete democratic ecosystem around them—one that supports everything from expressing opinions and forming agendas to facilitating deliberation and healthy competition. We're only at the beginning of designing such systems. The concept of "plural sensemaking" introduced in the DeSoc paper and further developed in the "Plurality" book coauthored by Glen Weyl and Audrey Tang represents some of the first steps in this direction.

This approach recognizes the limitations of purely aggregative democracy, where simple vote counting often fails to capture nuanced perspectives and can lead to short-sighted decision-making. By designing systems that emphasize deliberation and longer-term thinking alongside flexible representation, we can potentially address these fundamental weaknesses in current democratic models.

Several foundational challenges remain to be solved:

• How do we ensure transparent and fair evaluation processes?

• What safeguards can prevent manipulation by biased evaluators or those gaming the system?

• How can we build mechanisms that allow evaluations to evolve over time rather than becoming fixed and static?

• How do we balance immediate responsiveness with the need for long-term thinking on complex issues?

  
  

The path forward requires patience. As we establish the social foundations for SBTs and related systems, we'll need to carefully address these challenges one by one. Building a robust democratic ecosystem isn't something that happens overnight—it will require gradual, thoughtful development with input from diverse perspectives.

What's exciting is that we're not just recreating existing systems in digital form. We're asking fundamental questions about how collective decision-making could work if we were designing it from scratch in the digital age.

Current State and Challenges of Practical Application

Since the publication of the DeSoc paper in May 2022, specific SBT application cases like the following have gradually emerged, but overall, implementation has been limited to specific contexts such as educational institutions and specific communities:

• Acme Training (Educational Institution): Issues SBTs to certified course completers, enhancing the transparency of qualifications and learning history.

• Azuki, Pudgy Penguins (NFT Communities): Evaluate community members' contributions and event participation achievements with SBTs, strengthening members' sense of belonging.

• MixBytes (Smart Contract Audit Company): Records auditors' qualifications and achievements as SBTs, aiming to improve the reliability of audit services and the transparency of the auditor selection process.

• Singapore High Court (Legal Proceedings): Issues legal warnings via SBTs to wallets involved in fraud, utilizing them as a means for legal notices and risk awareness.

However, many of these initial implementations cannot be said to be SBTs with complete non-transferability, remaining at the stage of what could be called "proto-SBTs," where the issuing entity can burn or reissue tokens.

For the full-scale practical application of SBTs, the following technical challenges remain:

1. Key Management Issues: For cases where users lose their Soul's private key, a "social recovery" method, entrusting key recovery to trusted others, has been proposed. However, this method has been pointed out to have risks of collusion and complexity of management, requiring improvements. A safer "community recovery" method is also being considered, but specific implementation and verification have not yet been conducted.

2. Balance Between Privacy Protection and Information Disclosure: Discussions are ongoing about mechanisms to store SBT data off-chain and record only the hash on-chain, allowing users themselves to control the scope of information disclosure. Advanced privacy protection technologies like Zero-Knowledge Proofs (ZKP) are also being considered, but it is expected to take time until standardization and practical application.

3. Ensuring Interoperability: The standardization of common protocols for mutual use of SBTs between different blockchains is also not yet established. While discussions and development for multi-chain support are progressing, further technical development and verification are necessary to realize practical operation.

Thus, while SBTs have begun to see practical applications, albeit limited, overcoming technical and institutional challenges is essential for them to permeate widely in society. It is expected that these challenges will be solved one by one, leading to gradual development.

SBTs Japanese "En" (Connection) and SBTs

In traditional Japanese society, trust relationships within close communities such as local areas and workplaces, and the "en" (connections) that arose from them, supported individual evaluations and social ties. However, with urbanization and diversification of lifestyles, the way people connect has changed.

As temporary online and project-based relationships increase, values that cannot be fully captured by conventional evaluation criteria like educational and work history have become more important. In this context, the clear and verifiable nature of SBTs has the potential to bring new evaluation criteria to society that, while having affinity with Japan's traditional "seal culture," are not bound by existing institutional authorities or social status.

The Japanese word "en" originated from a Buddhist concept representing mutually dependent relationships where various conditions intertwine, and has developed uniquely within Japanese culture. "En" signifies more flexible and looser connections than "kizuna" (bonds), and includes tolerance that allows for ambiguity and margins. While it encompasses traditional and somewhat closed human relationships like "blood ties" and "regional ties," unlike relationships centered around interests or power such as "factions" or "academic cliques," it refers to more spontaneous and fluid relationships.

As seen in expressions like "this must be some kind of en" or "if we have en," the concept of "en" is deeply connected with a sense of positively accepting the physicality-accompanied coincidence of being in that time and place. There exists a sensibility that accepts and values such coincidences positively, even if their origins and destinations are not clear.

To prevent SBTs from becoming an inhuman and stifling mechanism and to truly contribute to the reconstruction of social capital, it would be essential to harmonize the richness of ambiguity and margins inherent in human relationships with the design philosophy of SBTs. Seeking ways to minimize the negative aspects of the Japanese concept of "en" while leveraging its positive aspects, and incorporating coincidence, ambiguity, flexible and future-oriented optimism into SBT design, might not only facilitate the acceptance of SBTs in Japan but also become an important perspective that could determine the success or failure of the SBT concept itself.

Seeking a Balance Between Ideal and Reality

There is a large gap between the ideal proposed by SBTs and the current stage of practical application, but this does not negate the value of the mechanism itself. A composite approach is required, gradually expanding the scope of application from small-scale experiments and positioning SBTs as a complement to existing trust formation mechanisms.

Also, human judgment is always involved when interpreting data recorded by SBTs. Even if the data itself is objective, it is humans who determine how to evaluate it and position it in a social context. Therefore, in utilizing SBTs, it is important to create an environment that draws out, complements, and further hones human judgment.

SBTs are by no means a panacea and should be positioned as "tools to support trust building between humans." By integrating objective data provided by technology and subjective trust relationships arising from daily interactions as mutually complementary rather than opposing them, we can build a foundation that nurtures richer social capital.

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This article will also be posted on Medium soon.

If it resonates with you, I’d be grateful to hear your thoughts there.