Start with 5 apps to understand why soul-bound tokens will bring mass adoption to DeFi

Author: Ignas, the following is compiled by the way of DeFi

In my opinion, Soulbound Tokens (SBTs) will bring mass adoption to DeFi.

The concept of soul binding was first introduced by Buterin and his colleagues a few months ago, and now, there are many projects using soul binding tokens!

Irons, below I will tell you how Soulbound Token works and some projects that have adopted it.

About Soulbound Tokens

Soulbound tokens represent a person’s identity on-chain.

Soul-bound tokens are like NFTs, but they are not transferable, so such tokens are actually “bound” to your “soul (on-chain identity)”.

Soulbound tokens can record your education, employment, medical and even credit history, or can also serve as a certificate for proof of attendance.

The lack of a native Web3 identity prevents DeFi from entering some real-world economic sectors, such as those involving under-collateralized loans and apartment rentals.

All in all, Buterin and his colleagues believe that soul-bound tokens are the key missing piece in building a decentralized Web3 society.

Irons can learn more about soul-bound tokens by checking out the original paper, or check out Jason Levin

Summary of an interview with the co-author of the Soulbound Tokens article, who claims that the next bull cycle in 2024 will be dominated by Soulbound tokens:

Start with 5 apps to understand why soul-bound tokens will bring mass adoption to DeFi

What is the future of Ethereum?
Last week, Buterin co-published a paper predicting the future of Ethereum.
I read the 37-page paper and interviewed the co-authors of the paper, so irons don’t have to read that long paper, just read my summary.

Interestingly, co-author Glen Weyl predicts that Soulbound tokens will be available for early use by the end of 2022.

Now, he’s right!

While Soulbound Token is still in its early stages, there are already several projects experimenting with it.

Several projects using soul-bound tokens

Goldfinch.fi

Goldfinch.fi brings real-world investing to DeFi with unsecured lending.

The protocol’s borrowers do not over-collateralize, but instead show creditworthiness based on the collective evaluation of other participants.

The current yield of USDC in the protocol is about 17%.

Start with 5 apps to understand why soul-bound tokens will bring mass adoption to DeFi

The Goldfinch.fi protocol has three roles: investor, borrower and auditor.

In which the auditor votes to approve the borrower. They are randomly selected at Piscine to provide a real check, prevent fraudulent activity and earn rewards.

To avoid Sybil attacks, all participants in the protocol need to pass a “unique entity check”.

The only physical checks are primarily SBTs verified on-chain in the form of non-transferable NFT-based (KYC), know-your-business (KYB) and/or US investor certifications.

There are currently 5 types of unique identities:

ID_TYPE = 0, non-US individuals: can vote and contribute funds in the protocol.

ID_TYPE = 1, US Accredited Individuals: Can vote and contribute funds to the premium pool and, on a case-by-case basis, the borrower pool (depending on borrower requirements).

ID_TYPE = 2, US non-certified individuals: can vote, but cannot provide funds

ID_TYPE = 3, U.S. Accredited Entity: Can vote and provide funding to priority pools and borrower pools, as appropriate (depending on borrower requirements)

ID_TYPE = 4, Non-US Entity: Can vote and fund the protocol.

Why is unique identity important?

Having an on-chain identity representative enables two major unlocks. First, it opens up DeFi to a whole new set of real-world players, especially corporations and financial institutions. It also greatly expands the design space for new features and mechanisms of DeFi protocols.

Many companies do not interact with DeFi today due to KYC/KYB and counterparty concerns. But unique identities solve these problems for them. Many companies are already borrowing through Goldfinch and they cannot do so without KYC/KYB and accreditation checks. As companies become more familiar with cryptocurrencies, they can bring a lot of new business to DeFi protocols.

Unique identities are fully interoperable with the rest of DeFi. It is a standard ERC-1155 contract, so any protocol can benefit without having to set up its own KYC process or handle any data itself.

It is also important to emphasize that Unique Identities take privacy into consideration. No personally identifiable data is stored on-chain. Goldfinch works with Persona to manage the KYC process and data and Parallel Markets to manage the KYB and certification process and data. They all offer industry-leading privacy and security practices trusted by many of the largest technology companies.

To obtain a unique identity, a user submits an Ethereum transaction to mint the unique identity and send it to their address.

The cool thing about Goldfinch Soulbound tokens is that they can be freely used by any other protocol, so users who have already minted the token do not need to re-pass KYC on other protocols.

Time

Masa Soulbound Identity is designed to power mainstream on-chain credit adoption for the next billion users.

It allows people to connect their traditional and cryptocurrency accounts, creating a decentralized credit report as a “souled” NFT.

Start with 5 apps to understand why soul-bound tokens will bring mass adoption to DeFi

Masa creates a “full financial health” report on users by connecting to their Metamask, Binance and other cryptocurrency exchanges or cryptocurrency addresses.

Compared to Goldfinch, Masa will enable unsecured lending by individuals on off-chain companies.

Start with 5 apps to understand why soul-bound tokens will bring mass adoption to DeFi

Proof of Humanity

Proof of Humanity is a combined social verification and video submission system that helps create a list of human users who are Sybil-proof.

In essence, he is actually the presentation of his true identity on the chain.

Start with 5 apps to understand why soul-bound tokens will bring mass adoption to DeFi

Each applicant must be sponsored by a confirmed identity. Use cases include insurance, credit scoring, secondary financing, anti-witch airdrops, DAOs, or universal basic income.

It will change the voting method of DeFi DAOs, from 1 token 1 vote to one person one vote DAO model.

Start with 5 apps to understand why soul-bound tokens will bring mass adoption to DeFi

The first version of Proof of Humanity did not use soulbound tokens, but the upcoming V2 will introduce the concept of soulbound identity.

Each unique identity will correspond to an address of a real human.

And if you lose your Ethereum address, you can apply for the same ID with another address.

Start with 5 apps to understand why soul-bound tokens will bring mass adoption to DeFi

Binance’s BAB

Binance recently launched the Binance Account-Bound (BAB) token, a soul-bound token that is primarily used as a proof of identity for Binance users to perform KYC.

Users can now mint BAB tokens on Binance Smart Chain, participate in building multiple projects and earn rewards.

Start with 5 apps to understand why soul-bound tokens will bring mass adoption to DeFi

The benefits of owning BAB tokens range from airdrops and VIP perks to access to newly launched features across the BNB ecosystem.

For example, ApeSwap will create a claimable NFT representing a sweepstakes exclusively for BAB holders.

Start with 5 apps to understand why soul-bound tokens will bring mass adoption to DeFi

Nexus Mutual

Finally, I’d like to add Nexus Mutual to this list.

Although NXM is not strictly a soul-bound token, it represents a

Tokenized membership on the protocol

To become a member of the protocol, users need to pass KYC, and only through KYC can they buy NXM.

More importantly, the token cannot be traded on Uniswap or any other exchange.

NXM was launched a few years ago before the concept of soul-bound tokens was introduced.

For this reason, I put it on my list of the most innovative DeFi token economics‌:

Start with 5 apps to understand why soul-bound tokens will bring mass adoption to DeFi

It is hard to innovate from zero to one in token economics.
Occasionally, however, a token emerges that is highly innovative and changes the trajectory of the industry.
There are several such examples in the last DeFi bull market.
Below are the top seven projects in my opinion.

It’s still early days for soul-bound tokens, but some use cases are already being put into practice.

I’m excited to see more protocols emerge using soul-bound tokens to build a decentralized Web3 society, and I’ll be watching this dynamic closely.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/start-with-5-apps-to-understand-why-soul-bound-tokens-will-bring-mass-adoption-to-defi/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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