Soulbound Token is the future of decentralized governance?

Is decentralized governance really decentralized as the name suggests, what role does the soulbound token play in it and is it the solution to optimize decentralization?

What is Soulbound Token (SBT)?

Soulbound Token (SBT), also known as Soulbound NFT, is inspired by the “Soulbound” feature of World of Warcraft game items.

SBT works like a real-life achievement badge, similar to what you get in a video game to complete a specific quest or pass an important milestone. But instead, get these badges to bring your character to max level.

In other words, users holding soulbound tokens will not be able to trade and transfer that Token to others. This token acts as an identifier that asserts ownership and is proof that the holder obtained this Token through a recognized activity, not buying “hands-on” from someone else.

Token creator Buterin envisions them as a way to demonstrate your employment history, education, and other IRL skills. The reason for creating the Token is because he was a massive fan of the World of Warcraft game when he was a child, and it was this game that brought Vitalik to Crypto.

How do Soulbound Tokens work?

Soulbound Tokens are your resume on the blockchain. With SBT, their wallet will have to issue your “Soul” an SBT diploma for you to make that claim.

SBTs can be distributed among members of a group or organization as proof of association. Artists, writers, and creators can use SBT as a digital portfolio. Even if it’s a niche audience like becoming the world’s leading expert in windsurfing, your respective SBT will act as a way of verifying those achievements to others.

This will make it impossible for people to confirm the wrong login. Buterin and his co-authors write, “tokens can help solve some of the ravaging decentralized finance problems, like fraud and theft.” This is where they believe the real power of the mechanism lies.

Unlike traditional NFT, SBT will be non-transferable and, therefore, will not be acquired through commerce. However, users will be free to revoke their SBT upon request.

Is decentralized governance decentralized?

To answer this question, Ethereum creator Vitalik Buterin wrote a long article outlining the non-decentralized elements of how the DAO works.

“Decentralized governance is necessary, but doing it through coin voting carries many risks that are or have not been discovered. The solution’s core is to change or replace voting with coins.”

Is SBT the solution?

In one of his articles, Vitalik suggested using soulbound tokens instead of the current governance tokens.

The Ethereum founder suggested that instead of a DAO model that favors large holders of governance tokens, we should use soulbound tokens for voting. This can prevent staking pools from collecting tickets from other users – because soulbound permits are not tradable.

And finally, Vitalik supports the current governance model of Optimism – the Layer2 project that stands out with the recent massive OP airdrop.

Although Soulbound Token brings more benefits in governance than the current governance token model, this Token also has disadvantages. Imagine if the wallet holding the soulbound Token was hacked, then this “identity card” must also change hands.

Besides, since there are not many practical applications of the soulbound Token yet, some potential downsides may not be discovered.

What about you? Do you think Soulbound Token is the future of decentralized governance?

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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