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Decentralization of personal data with Soulbound tokens (SBT)

Maciej Zieliński

29 May 2022
Decentralization of personal data with Soulbound tokens (SBT)
Table of Contents

NFT and tokens are one of the most popular forms of indicating ownership rights or commercial products. For several years, this area of blockchain has been constantly evolving and has been used in art, gaming and finance. What can the new tokens proposed by one of the biggest crypto visionaries, Vitalik Buterin, bring to the market? What are Soulbound tokens? We're writing about it below!

Vitalik Buterin and SBT

The creator of Ethereum, Vitalik Buterin, pointed out some time ago that it would be a good idea to implement a new kind of tokens that will help to test the actions, achievements, antipathies and other factors among potential crypto users. Due to the fact that, according to Vitalik, they will be a sort of "look into the soul", the tokens were called Soulbound. These tokens are non-transferable NFT and are stored in special crypto portfolios called “Souls”. Vitalik points out that they can be used in many ways – from educational certification to credit assessment.

How does SBT work?

SBT will be a kind of medium for our information, which will facilitate the everyday lives of many people thanks to full automation and decentralization. For example, our SBT will gather information regarding CV, education, interests and other factors. Thus, if a university is interested in our potential application, the SBT will analyze all the information indicating whether we are a good candidate or not. It also works the other way around – with all the information regarding a particular University, the SBT will be able to assess if it meets our requirements. The decentralization of information will be outside the reach of all bureaucracy, major institutions and companies. Moreover, you do not need to create a database because it will be stored in a separate location – you will get an access key.

What to do if you lose the key to your SBT?

The lack of access to your wallet is one of the worst problems you can imagine in the cryptocurrency industry. What if you lose the keys to the SBT? Many people are now probably asking themselves whether all your information, certificates, university diplomas, etc., will disappear if the keys are lost. There will probably be a solution to this situation. If you lose your keys, you will be able to recover your wallet if you get the permission of the SBT community.

Spam – as a problem in SBT

Can other users smuggle content into your token? This question also appears among NFT users. The answer to it is simple: Vitalik proposed the possibility of hiding SBT keys from the public.

Is personal information stored using SBT safe?

Leaving aside the issue of spam, private key protection, and disclosure of critical information regarding our person - attaching all this to a public blockchain sounds intriguing! Unfortunately, if there's no way to hide these NFTs from other people, they could turn out to be dangerous. Someone with access to an entity's data will have the ability to influence it in many ways. Some point out that SBT is a bit like China's social credit system in China, which is used in a very negative way. It involves rating the public on a number of levels, from party affiliation to education to reporting on other citizens. For each action, the system accrues points. Those who have fewer points have poorer access to education, cannot buy better equipment, and their social situation constantly weakens. Without a doubt, this is simply a categorization of citizens. Nevertheless, SBT is not intended to categorize people, but to store data outside of central authorities and automate any bureaucratic process. 

SBT Safe

Can an SBT token be transferred to another person?  

Since we cannot trade our token or transfer it to other people, what can be done with it? Here are some examples of a potential SBT solution: 

  • DAO (Decentralized Autonomous Organization) aims to create an environmental community. Attendees of environmental conferences and graduates of environmental programs can obtain SBT by airdrop from the DAO. 
  • Security of documentation - if universities will issue diplomas and certificates in the form of SBT, by the very definition - they cannot sell their documents or forge them thanks to blockchain technology. 
  • Experience verification - if, for example, a given IT company wants to hire programmers specializing in blockchain technology, it will check their experience, projects, and education automatically using SBT. After the initial data analysis, potential candidates can be invited for an interview. 

SBT tokens show a person's university affiliation, membership in academic programs, and qualifications. Additionally, this token will be able to represent the unique and individual characteristics of the subject. It is safe to say that this kind of token will help in building reputation and protecting identity. Vitalik himself indicates that we are moving towards a society that will be fully decentralized and independent of state bodies and entities. 

How to transfer SBT from one wallet to another?

What if a user wants to move all his assets (SBT) from one wallet to another? There are several solutions to this situation: 

  • Store the item at an address that is an abbreviation of the index, the recipient's address, and a secret belonging to the recipient. You can reveal your secret to the interface, which will then scan all possible items belonging to you, but no one without your secret will be able to see which items belong to you.
  • Publish a hash of multiple objects and give each recipient its Merkle branch.
  • If a smart contract needs to verify that you have an item, you can provide ZK-SNARK.

Transfers can take place over the network. The technique that is least complicated should be using ZK-SNARK. In this case, a transaction will be made that invokes a factory contract to make the old item invalid and the new item valid. Everything is done using ZK-SNARK, which makes the operation valid. According to Buterin - transferability mainly shows the money orientation of Web 3.0 and how it can hurt the long-term stability of the next generation. Vitalik also shows the advantage of SBT over NFT. According to him, you can buy and sell NFTs to support artists, charities, etc, but this kind of technology cannot be used for the Soulbound Tokens concept as it could create a wide scope for infringement. 

When will SBTs be created? 

Vitalik, claims that Soulbound Tokens (SBTs) will be available as early as 2022, and by the end of 2024, they will already be popular worldwide. Hopefully, this kind of new technology will greatly improve the transfer of information and protect it with a decentralized structure! 

Are SBTs the future of NFT? 

It is likely that SBTs can be used by institutions native to web3 - DAO. It is assumed that Stanford University will recognize degrees held in NFT in about 5 years. It may be that the university's blockchain program itself will offer SBTs and other solutions from NFT to graduates of its university. Let's look at the number of clerks, staff, faculty, and bureaucracy it takes to process a simple resume or graduate school document. Imagine all these solutions will be redundant with a single token that fully automates the entire hiring process. Without a doubt, SBTs are the future of NFT. 

Benefits of implementing SBTs

The potential benefits of decentralizing personal data could be:

  • reducing government service costs, 
  • improving the flow of capital within a company by automating the transfer of documents,
  • improving employee and student recruitment, 
  • increased security of workflows in the private and public sectors, 
  • a more practical system for a single person - all documents in one place - no paper accumulation. 
SBT vs NFT

Summary 

SBTs are tokens that can make all bureaucracy as well as documentation fully automated and digitized. Thanks to blockchain technology and the innovative design of the SBT token, many states and businesses will have the opportunity to reduce costs. In particular, such a solution will be helpful when recruiting employees, and students, transferring information between hospitals, or insurance. The possibilities of decentralizing information are endless!  What do you think about SBT? Let us know in the comments! 

Tagi

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Aethir Tokenomics – Case Study

Kajetan Olas

22 Nov 2024
Aethir Tokenomics – Case Study

Authors of the contents are not affiliated to the reviewed project in any way and none of the information presented should be taken as financial advice.

In this article we analyze tokenomics of Aethir - a project providing on-demand cloud compute resources for the AI, Gaming, and virtualized compute sectors.
Aethir aims to aggregate enterprise-grade GPUs from multiple providers into a DePIN (Decentralized Physical Infrastructure Network). Its competitive edge comes from utlizing the GPUs for very specific use-cases, such as low-latency rendering for online games.
Due to decentralized nature of its infrastructure Aethir can meet the demands of online-gaming in any region. This is especially important for some gamer-abundant regions in Asia with underdeveloped cloud infrastructure that causes high latency ("lags").
We will analyze Aethir's tokenomics, give our opinion on what was done well, and provide specific recommendations on how to improve it.

Evaluation Summary

Aethir Tokenomics Structure

The total supply of ATH tokens is capped at 42 billion ATH. This fixed cap provides a predictable supply environment, and the complete emissions schedule is listed here. As of November 2024 there are approximately 5.2 Billion ATH in circulation. In a year from now (November 2025), the circulating supply will almost triple, and will amount to approximately 15 Billion ATH. By November 2028, today's circulating supply will be diluted by around 86%.

From an investor standpoint the rational decision would be to stake their tokens and hope for rewards that will balance the inflation. Currently the estimated APR for 3-year staking is 195% and for 4-year staking APR is 261%. The rewards are paid out weekly. Furthermore, stakers can expect to get additional rewards from partnered AI projects.

Staking Incentives

Rewards are calculated based on the staking duration and staked amount. These factors are equally important and they linearly influence weekly rewards. This means that someone who stakes 100 ATH for 2 weeks will have the same weekly rewards as someone who stakes 200 ATH for 1 week. This mechanism greatly emphasizes long-term holding. That's because holding a token makes sense only if you go for long-term staking. E.g. a whale staking $200k with 1 week lockup. will have the same weekly rewards as person staking $1k with 4 year lockup. Furthermore the ATH staking rewards are fixed and divided among stakers. Therefore Increase of user base is likely to come with decrease in rewards.
We believe the main weak-point of Aethirs staking is the lack of equivalency between rewards paid out to the users and value generated for the protocol as a result of staking.

Token Distribution

The token distribution of $ATH is well designed and comes with long vesting time-frames. 18-month cliff and 36-moths subsequent linear vesting is applied to team's allocation. This is higher than industry standard and is a sign of long-term commitment.

  • Checkers and Compute Providers: 50%
  • Ecosystem: 15%
  • Team: 12.5%
  • Investors: 11.5%
  • Airdrop: 6%
  • Advisors: 5%

Aethir's airdrop is divided into 3 phases to ensure that only loyal users get rewarded. This mechanism is very-well thought and we rate it highly. It fosters high community engagement within the first months of the project and sets the ground for potentially giving more-control to the DAO.

Governance and Community-Led Development

Aethir’s governance model promotes community-led decision-making in a very practical way. Instead of rushing with creation of a DAO for PR and marketing purposes Aethir is trying to make it the right way. They support projects building on their infrastructure and regularly share updates with their community in the most professional manner.

We believe Aethir would benefit from implementing reputation boosted voting. An example of such system is described here. The core assumption is to abandon the simplistic: 1 token = 1 vote and go towards: Votes = tokens * reputation_based_multiplication_factor.

In the attached example, reputation_based_multiplication_factor rises exponentially with the number of standard deviations above norm, with regard to user's rating. For compute compute providers at Aethir, user's rating could be replaced by provider's uptime.

Perspectives for the future

While it's important to analyze aspects such as supply-side tokenomics, or governance, we must keep in mind that 95% of project's success depends on demand-side. In this regard the outlook for Aethir may be very bright. The project declares $36M annual reccuring revenue. Revenue like this is very rare in the web3 space. Many projects are not able to generate any revenue after succesfull ICO event, due to lack fo product-market-fit.

If you're looking to create a robust tokenomics model and go through institutional-grade testing please reach out to contact@nextrope.com. Our team is ready to help you with the token engineering process and ensure your project’s resilience in the long term.

Tagi

Quadratic Voting in Web3

Kajetan Olas

04 Dec 2024
Quadratic Voting in Web3

Decentralized systems are reshaping how we interact, conduct transactions, and govern online communities. As Web3 continues to advance, the necessity for effective and fair voting mechanisms becomes apparent. Traditional voting systems, such as the one-token-one-vote model, often fall short in capturing the intensity of individual preferences, which can result in centralization. Quadratic Voting (QV) addresses this challenge by enabling individuals to express not only their choices but also the strength of their preferences.

Table of Contents

In QV, voters are allocated a budget of credits that they can spend to cast votes on various issues. The cost of casting multiple votes on a single issue increases quadratically, meaning that each additional vote costs more than the last. This system allows for a more precise expression of preferences, as individuals can invest more heavily in issues they care deeply about while conserving credits on matters of lesser importance.

Understanding Quadratic Voting

Quadratic Voting (QV) is a voting system designed to capture not only the choices of individuals but also the strength of their preferences. In most DAO voting mechanisms, each person typically has one vote per token, which limits the ability to express how strongly they feel about a particular matter. Furthermore, QV limits the power of whales and founding team who typically have large token allocations. These problems are adressed by making the cost of each additional vote increase quadratically.

In QV, each voter is given a budget of credits or tokens that they can spend to cast votes on various issues. The key principle is that the cost to cast n votes on a single issue is proportional to the square of n. This quadratic cost function ensures that while voters can express stronger preferences, doing so requires a disproportionately higher expenditure of their voting credits. This mechanism discourages voters from concentrating all their influence on a single issue unless they feel very strongly about it. In the context of DAOs, it means that large holders will have a hard-time pushing through with a proposal if they'll try to do it on their own.

Practical Example

Consider a voter who has been allocated 25 voting credits to spend on several proposals. The voter has varying degrees of interest in three proposals: Proposal A, Proposal B, and Proposal C.

  • Proposal A: High interest.
  • Proposal B: Moderate interest.
  • Proposal C: Low interest.

The voter might allocate their credits as follows:

Proposal A:

  • Votes cast: 3
  • Cost: 9 delegated tokens

Proposal B:

  • Votes cast: 2
  • Cost: 4 delegated tokens

Proposal C:

  • Votes cast: 1
  • Cost: 1 delegated token

Total delegated tokens: 14
Remaining tokens: 11

With the remaining tokens, the voter can choose to allocate additional votes to the proposals based on their preferences or save for future proposals. If they feel particularly strong about Proposal A, they might decide to cast one more vote:

Additional vote on Proposal A:

  • New total votes: 4
  • New cost: 16 delegated tokens
  • Additional cost: 16−9 = 7 delegated tokens

Updated total delegated tokens: 14+7 = 21

Updated remaining tokens: 25−21 = 425 - 21 = 4

This additional vote on Proposal A costs 7 credits, significantly more than the previous vote, illustrating how the quadratic cost discourages excessive influence on a single issue without strong conviction.

Benefits of Implementing Quadratic Voting

Key Characteristics of the Quadratic Cost Function

  • Marginal Cost Increases Linearly: The marginal cost of each additional vote increases linearly. The cost difference between casting n and n−1 votes is 2n−1.
  • Total Cost Increases Quadratically: The total cost to cast multiple votes rises steeply, discouraging voters from concentrating too many votes on a single issue without significant reason.
  • Promotes Egalitarian Voting: Small voters are encouraged to participate, because relatively they have a much higher impact.

Advantages Over Traditional Voting Systems

Quadratic Voting offers several benefits compared to traditional one-person-one-vote systems:

  • Captures Preference Intensity: By allowing voters to express how strongly they feel about an issue, QV leads to outcomes that better reflect the collective welfare.
  • Reduces Majority Domination: The quadratic cost makes it costly for majority groups to overpower minority interests on every issue.
  • Encourages Honest Voting: Voters are incentivized to allocate votes in proportion to their true preferences, reducing manipulation.

By understanding the foundation of Quadratic Voting, stakeholders in Web3 communities can appreciate how this system supports more representative governance.

Conclusion

Quadratic voting is a novel voting system that may be used within DAOs to foster decentralization. The key idea is to make the cost of voting on a certain issue increase quadratically. The leading player that makes use of this mechanism is Optimism. If you're pondering about the design of your DAO, we highly recommend taking a look at their research on quadratic funding.

If you're looking to create a robust governance model and go through institutional-grade testing please reach out to contact@nextrope.com. Our team is ready to help you with the token engineering process and ensure that your DAO will stand out as a beacon of innovation and resilience in the long term.

Tagi