A Brief Analysis of the Potential Application Scenarios of Binance's First Soulbound Token BAB

Original Title: 《Analyzing the Potential Application Scenarios of Binance's First Soulbound Token BAB》

Author: Liu Quankai, Wu Says Blockchain

Editor: Colin Wu

On September 8, Binance announced the launch of the first Soulbound Token (SBT) based on the BNB Chain: the Binance Account Bound (BAB) token, serving as proof of identity for Binance users who have completed KYC verification. On the same day, 14 Web3 projects on the BNB Chain (such as ApeSwap, ApolloX, Galxe, Cyber Connect, etc.) will incentivize users holding the newly released BAB Token with rewards including exclusive airdrops, NFT claims, VIP privileges, daily reward points, and more. The BNB Chain also expressed encouragement for more projects to use the BAB Token, which will provide users with more benefits in the future.

Soulbound Token (SBT), similar to soulbound items in World of Warcraft, was first proposed by Ethereum founder Vitalik Buterin in January this year. Simply put, it is a non-transferable ERC-20 or ERC-721, non-financial in nature, often representing a form of identity or affiliation. Similarly, BAB also has the characteristics of being non-transferable, revocable, and unique. Non-transferable means that users cannot transfer the BAB Token to other users; revocable means that users can unbind the BAB Token they own; uniqueness means that a BAB Token can only be minted at a specific address on a specific chain through a verified Binance user ID.

Benefits

(1) For ordinary users, the non-transferable nature of SBT will more easily evoke a sense of responsibility, as SBT does not possess financial and wealth attributes; it more represents a Web3 on-chain behavior credential that can be verified. Users holding the BAB Token represent and prove that they have successfully completed the Binance KYC process, which helps identify and eliminate bot accounts. In the future, by obtaining on-chain time queries for BAB, it can also determine whether the user is a loyal user of the exchange. On the other hand, BAB binds the Binance account to the user address, and the behavior of that on-chain address may become a criterion for Binance to evaluate major clients and privileged owners, thereby attracting more core users/whales; additionally, it also helps to prevent hackers/scammers to some extent, as binding BAB effectively cuts off the possibility of transferring funds from the on-chain address to the exchange.

(2) For protocol project parties, they can use and verify the identity of BAB holders for various purposes, including but not limited to airdrops and rewards. dAPPs can also utilize the BAB Token to categorize on-chain data to identify different types of users, thus achieving differentiated interactions with users, which may provide possibilities for more diverse tasks assigned to users and establishing a more distinctive community. Different SBTs can also represent members of different communities. Furthermore, some Web3 identity credential protocols may have sensed Binance's intention to bridge the relationship between internal account systems and BNB Chain on-chain addresses, and are integrating their ecosystems with BAB to capture their users, such as Link3 conducting early participation proof lotteries for BAB Token users.

(3) Achieving governance rights through soulbinding. If the governance mechanism becomes chaotic, governance rights can easily be transferred. Currently, the implementation of governance rights mainly applies to FT and NFT, both of which can be easily transferred. In "Soulbound," Vitalik Buterin argues that whether the goal is to broadly distribute governance rights or to hand them over to capable individuals, it is likely to lead to the transfer of governance rights, as the concentrated interests of the former may allow some individuals to purchase governance rights from others, while the latter often results in governance rights being acquired by determined but incompetent individuals. Transferability may shift governance power from those who can provide overall value to those who desire power and possess strong capital. In DeFi history, governance wars are not unfamiliar, such as the well-known Curve War, where major protocols offer higher CRV rewards as bribes to attract investors to ensure their position in preferred pools. In the future, decentralized protocols on the BNB Chain may combine project token holders with BAB Token holders, granting higher governance rights based on holding time and other conditions.

Controversies

A single address cannot represent a user and faces risks such as address changes and private key loss. Unlike addresses that can be created infinitely, most individuals are often limited to one exchange account due to KYC. The BAB Token and many current SBTs are encapsulated within a specific on-chain address, and the data behavior of that address may not fully represent the user themselves. BAB requires the Binance KYC account to be bound to a specific address; if a user connects an infrequently used address or a hedge address, the data that on-chain protocols wish to obtain about BAB users may not be accurate, and the actual on-chain behavior of the user may differ significantly from the behavior of the bound address. Additionally, with the frequent occurrence of hacking incidents, SBTs bound to addresses also face issues such as private key leakage and loss. Currently, some EIP standards are attempting more solutions, such as EIP-5114, which suggests that SBTs should be bound to an NFT rather than an address; Vitalik Buterin has also mentioned in some of his articles, such as in "Soulbound," that if users care enough about their ENS domain names, they can bind SBTs to ENS domain names; in "Decentralized Society: Finding Web3 Soul," SBTs can be unlocked and governance rights obtained by holding transferable ERC-20 Tokens for a certain period.

Overall, as the first soulbound token BAB backed by the largest exchange Binance and the most widely used BNB Chain, it holds pioneering significance. It is believed that in the future, more third-party protocols or data analysis institutions both within and outside the BNB Chain will connect with BAB. Other exchanges such as FTX, OKX, Huobi, etc., may also choose to imitate or make more attempts with SBTs after the big brother Binance, bringing more privileges and benefits to users.

Reference Articles:

https://www.bnbchain.org/en/blog/soulbound-tokens-to-pave-the-way-for-decentralized-society-on-bnb-chain/

https://vitalik.eth.limo/general/2022/01/26/soulbound.html

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4105763

https://github.com/ethereum/EIPs/pull/5114