- Non-Fungible Tokens (NFTs) have been employed as a motivator for community building by thousands of projects and even well-known businesses since their introduction.
- In addition to using non-fungible tokens (NFTs), Masa Protocol was the first project to propose Soulbound Tokens (SBTs) as a basic primitive to assist community leaders in developing enduring community loyalty.
When reduced to their bare essentials, non-fungible tokens (NFTs) are what Soulbound tokens (SBTs) are. Why use SBTs when a project might use NFTs is one frequent question.
Here Are Several Key Benefits Of Using SBTs In Comparison To NFTs
- Long-Term, Sustainable Community Building
NFTs frequently follow brief hype cycles in which people rush into popular projects to maximize value. NFTs are typically gathered; by rewarding power users with more expensive, scarcer NFTs, users are typically encouraged to sell these NFTs to gain the value they represent.
NFTs are not intended to be related to a user’s identity, stacked within an ecosystem, or attached to their connectivity. Because NFTs are transferable and have a secondary market, it is inherently challenging to use them to permanently identify a user’s position, actions, and affiliations.
- Cross-Chain Interoperability
Cross-chain composability is absent in NFTs. NFTs must naturally exist on a single chain to maintain their value, community, and liquidity. NFTs can’t yet exist on many blockchains at once without losing their distinct identity and transferability.
- Gas Savings
The most valuable NFTs are now found on Ethereum, where gas fees are still out of reach for a large portion of the user community. If an NFT’s value drops below the cost of purchasing it, whether it was airdropped or minted on ETH, the race to accumulate as many as possible and maintain its worth begins.
- Scalable Value
Scarcity is necessary to maintain the value of NFTs as well as a collection’s value. Because employing NFTs to reward behaviors, loyalty, and diverse acts is by nature diluted by the value promised to the users, this limits the scalability of a project’s user base.
- Regulatory Complexities
The legislative environment for NFTs is currently ambiguous in many jurisdictions, which increases the risk for the new projects that are delivering them. Users who receive NFTs as a participatory incentive are subject to taxation in the US and many other countries based on their fair market value at the time of receipt. Many users are not knowledgeable enough to declare this to tax authorities in a responsible manner. Another issue with the ecosystem is rewarding users with a taxable event.
In that they are distinct, Soulbound tokens are comparable to non-fungible tokens (NFTs), but there are some significant differences between them in terms of transferability.
SBTs and NFTs vary most in that SBTs cannot be purchased, sold, or traded. SBTs are best used when a holder needs to prove they have finished a task (such as receiving a college degree or working at a specific corporation), as they cannot be purchased, sold, or exchanged like NFTs.