Last week, Vitalik Buterin co-authored a 37 page paper predicting the future of Ethereum.

In it, he describes a new concept known as “Soulbound” tokens (SBTs), which have the potential to massively disrupt Web3 as we know it.
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The paper starts by explaining some of the limitations seen in Web3 today.
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According to Vitalik:
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“Web3 today centers around expressing transferable, financialized assets, rather than encoding social relationships of trust.” 
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This represents a problem because the majority of core economic activities -such as undercollateralized lending and personal brands- are built on persistent, non-transferable relationships.
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In this paper, Vitalik illustrates how non-transferable Soulbound tokens, which represent commitments, credentials, and attestations of “Souls”, (wallets that contain SBTs), can encode the trust networks of the real economy to establish provenance and reputation.
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Furthermore, he describes how SBTs enable other applications of increasing ambition, such as community wallet recovery, sybil-resistant governance, mechanisms for decentralization, and novel markets with decomposable, shared rights.
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The end result is a decentralized society where Souls and communities come together bottom-up, as emergent properties of each other to co-create plural network goods and intelligences, at a range of scales.
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In order to get to this decentralized society, Vitalik outlines “A Stairway to DeSoc”, where each section includes small, incremental, advances in the use cases of SBTs.
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The “Stairway To DeSoc” is as follows:
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-Establishing provenance
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-Unlocking undercollateralized lending markets through reputation
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-Enabling decentralized key management
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-Thwarting and compensating for coordinated strategic behavior
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-Measuring decentralization
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-Creating novel markets with decomposable, shared rights and permissions
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![alt text](/assets/images/posts/soulbound/2.png 'Stairway to a Decentralized Society')
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Let's go over each of these one by one.
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**Establishing Provenance**
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The first use case enabled by SBTs that Vitalik describes is establishing provenance.
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In the case of artwork, artists can use “Souls” as a natural way to stake reputation on their works.
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When issuing an NFT, an artist can do so from their Soul. Buyers can then look at the SBTs inside of the artist’s Soul to verify it indeed does belong to said artist.
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Additionally, artists could go a step further to issue a linked SBT stored in their Soul that attests to the NFT’s membership to a “collection” and vouches for whatever scarcity limits the artist wishes to set.
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“Souls would thus create a verifiable, on-chain way to stake and build reputation on the provenance and scarcity of an object.”
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However, this can go beyond just art. SBTs can be used for services, rentals, and any market built on scarcity, reputation, or authenticity.
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“While blockchain inclusion enables us to trace the time a particular work was made, SBTs would enable us to trace the social provenance, giving us rich social context to the Soul that issued the work—their constellation of memberships, aliations, credentials—and their social distance to the subject.”
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**Unlocking undercollateralized lending markets through reputation**
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Currently, the web3 ecosystem cannot replicate simple forms of uncollateralized lending, because all assets are non-transferable, thus forms of collateral. 
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In traditional finance, undercollateralized lending utilizes “credit scores” to gauge trustworthiness of borrowers.
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However, these scores have flaws.
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“At best, they opaquely overweight and underweight factors relevant to creditworthiness, and bias those who haven’t accumulated sucient data—mainly minorities and the poor. At worst, they can enable Black Mirror opaque “social credit” systems that engineer social outcomes and reinforce discriminations.”
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Using SBTs, we can form a censorship-resistant, bottom-up alternative to top-down social credit systems.
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To build reputation for individuals, SBTs that represent education credentials, work history, and rental contracts could serve as a persistent record of credit relevant history.
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Loans and credit lines can be represented as non-transferable but revocable SBTs until they are repaid and subsequently burned, or replaced with proof of payment SBTs.
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According to Vitalik: 
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“The ease of computing public liabilities with SBTs would open-source lending markets. New correlations between SBTs and repayment risk would emerge, birthing better lending algorithms that predict creditworthiness and thereby reduce the role of centralized, opaque credit-scoring infrastructure.”
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**Enabling decentralized key management**
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The non-transferability of key SBTs—such as one-time issued education credentials—raises an important question: how do you not lose your Soul?
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Traditional recovery methods such as multi-sig recovery and mnemonics, have different trade offs between mental overhead, ease of transacting, and security.
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Other alternatives, such as social recovery, are an emerging alternative that relies on a person’s trusted relationships.
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With social recovery, user curates a set of “guardians'' and gives them the power, by majority, to change the keys of their wallet. Guardians could be a mix of individuals, institutions, or other wallets. 
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This of course has its drawbacks. 
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“Guardians can pass away, relationships sour, or people simply fall out of touch, requiring frequent and attention-taxing updates. While social recovery avoids a single point of failure, successful recovery nonetheless depends on curating and maintaining trusted relationships with a majority of guardians.”
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SBTs allow for a similar, but broader paradigm to social recovery: community recovery, where the Soul is the intersectional vote of its social network.
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In community recovery, a Soul’s recovery is tied to a Soul’s memberships across communities, not curating but instead drawing on a maximally broad set of real-time relationships for security.
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“In a community recovery model, recovering a Soul’s private keys would require a member from a qualified majority of a (random subset of) Soul’s communities to consent.”
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**Thwarting and compensating for coordinated strategic behavior**
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So far, web3 has largely relied on token sales or airdrops to summon new communities.
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These airdrops yield little accuracy or precision, and are easily susceptible to sybil attacks.
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SBTs offer a radical improvement called “Souldrops”.
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“Souldrops are airdrops based on computations over SBTs and other tokens within a Soul. For example, a DAO that wants to convene a community within a particular layer 1 protocol could souldrop to developers who hold 3 out of the last 5 conference attendance SBTs, or other tokens representing attendance like POAPs”
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SBTs open up the possibility to experiment with mechanisms that maximize community engagement and decentralization.
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**Measuring decentralization**
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Measuring decentralization is hard.
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Existing attempts rely on complex algorithms to gauge decentralization, and leave about gray areas or unanswered questions on what criteria should be measured, what should be done about partial participation, and what exactly constitutes a “distinct” identity.
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A better way of measuring decentralization would capture social dependencies, weak aliations, and strong solidarities.
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This is where SBTs come into play.
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SBTs support a different way of measuring the level of decentralization (or pluralism) in a DAO, protocol, or network. 
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-As a first step, protocol could limit token voting to reasonably sybil-resistant (or SBT rich) Souls. 
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-As a second step, a protocol could examine the correlations between SBTs held by different Souls and discount votes by Souls (pooling them as only partially separate) if they share a large number of SBTs.
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-As a third step, to zoom out and get a sense of the decentralization across the network, one could measure the correlations between SBTs held by Souls among and across different layers of the network stack—measuring correlations in voting, token ownership, governance-related communication, and even control over computational resources.
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“SBTs allow us to begin to measure the decentralization of an interoperating and layered ecosystem that is very difficult to measure at all today”
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**Creating novel markets with decomposable, shared rights and permissions**
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“So far web3’s scope has largely been limited to a narrow class of property whose bundle of rights are wholly transferable: tokens, NFTs, artworks, rst editions or rare manuscripts like the U.S. Constitution. But the emphasis on transferability has been to web3’s detriment, making it incapable of representing and supporting some of the simplest and ubiquitous property contracts today, such as apartment leases.”
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SBTs have the flexibility to represent property rights of both physical and virtual assets, while encouraging new experiments.
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For example, SBTs can be used for:
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-Permissioning access to privately or publicly controlled resources (e.g., homes, cars, museums, parks, and virtual equivalents). Transferable NFTs fail to capture this use case well because often access rights are conditional and non-transferable: if I trust you to enter my backyard and use it as recreational space, that does not imply that I trust you to sub-license that permission to someone else.
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-Data Cooperatives where SBTs grant data access to researchers, while instantiating members’ rights to grant access (perhaps by quadratic vote) and bargain for economic rights to discoveries and intellectual property born out of research.
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-Experiments with local currencies with rules that make them more valuable to hold and spend by Souls who live in a particular region or are part of a particular community. 
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-Experiments in participation where SBTs create a continuous basis for less contextualized Souls (e.g., immigrants, adolescents) to gain influence within novel and broader networks. Such Souls would begin with narrow SBTs that pool them with their families or local communities. As their aliations gradually diversify, they would gain broader SBTs that instantiate voting rights to inuence broader networks—in the spirit of Danielle Allen’s idea of polypolitanism—a process that currently is mediated by arbitrary age and residence cut-offs.
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-Experiments in market design, such as Harberger taxation and SALSA (self-assessed licenses sold at auction), where holders of an asset post a self-assessed price at which anyone else can buy the asset from them, and must periodically pay a tax proportional to the self-assessed price to maintain control. SBTs could be used to create more nuanced versions of SALSA—for example, where rights of participation are approved by the community to minimize strategic behavior from within or outside the community. 
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-Experiments in democratic mechanism design such as quadratic voting. Holders of SBTs representing membership in a community could quadratically vote on parameters such as incentives and tax rates. Ultimately, “markets” and “politics” are not separate design spaces; SBTs can be a major part of a technological stack that enables the entire space between the two categories to be explored. Provision of public goods through quadratic funding is another such intersection.
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While transferable NFTs have their place and can be really valuable on their own for supporting artists and charities, there is also a large and underexplored design space of what non-transferable NFTs could become. This is why Vitalik thinks Soulbound tokens are "the future" of Ethereum.