The trading platform finds a home for users’ ‘souls’ on the exchange
Now that we’ve figured out, thanks to NFTs, how to digitally guarantee the provenance of an object or event, we should be able to guarantee the provenance of a human being. And the team behind Phemex, a centralized exchange that intends to partially decentralize, think they’ve figured out how.
If you want to participate, it won’t cost you anything but your “soul”.
Last year, Ethereum founder Vitalik Buterin came up with the concept of the soulbound token, which later was inevitably abbreviated as SBT. Drawing inspiration from World of Warcraft’s workaround to make sure you can’t buy your way to ultimate success in the game, Vitalik proposed that the blockchain can also adopt a tokenized proof of identity.
“A soulbound item [in WoW], once picked up, cannot be transferred or sold to another player,” Buterin writes. “Most very powerful items in the game are soulbound, and typically require completing a complicated quest or killing a very powerful monster. ... Hence, in order to get your character anywhere close to having the best weapons and armor, you have no choice but to participate in killing some of these extremely difficult monsters yourself.”
Of course, there are no monsters on Phemex. That’s why people trade on CEXes in the first place. Exchanges like Phemex provide their users with peace of mind when trading by assuring them that their balances are backed by actual assets through Proof of Reserves, and by verifying their identity through Know Your Client completion.
But how does an exchange decentralize – to ensure traders’ security and privacy – while ensuring identity verification? Enter the SBT.
In addition to ensuring that a party is qualified to trade on Phemex, it also enables participation in its governance. As part of its decentralization effort, the team is creating the PhemexDAO, and SBTs will be community members’ tickets to propose and vote on the platform's operations, treasury management, growth and collaborations.
One of a kind token
The Phemex Soul Pass, which cannot be traded, is not to be confused with the platform token the exchange plans to roll out later this year.
It’s an important point that Soul Pass has no market value. Because it is untradeable, there is no denying who is connected to whatever action is being taken with it. That identity can be anonymized; it can be kept as private as it needs to be. But Phemex will still be able to meet its identity verifications and know if anyone is trying some nefarious maneuver to control the DAO.
“The Soul Pass has a lot of different metadata on the chain, and it can track your activity on our platform,” says Phemex Chief Market Officer Stella Chan. “So it's not something that can be faked. … This technology will eventually facilitate what Vitalik called a decentralized society.’”
In addition to being untradable, SBTs are untransferable. It’s safe to say that all major crypto players have multiple wallets, and it would just muddy the waters if someone could play shell games with it. Then, in addition to losing track of who the SBT belonged to, the issuer might also have to contend with individuals having multiple identities.
Phemex is an early adopter of SBTs. There’s been a whole lot more written about their possibilities than there has been actual development of the ERC 20-compliant coins. Chan believes that it will be a multi-stage process before these are widely adopted in the cryptocurrency space and the broader blockchain world to come.
What’s your soul worth?
“POAP is a standard by which projects can send NFTs that represent the idea that the recipient personally participated in some event,” according to Buterin.
Beyond POAP, Phemex is breaking new ground by using SBTs for on-chain identity and decentralized governance, as opposed to its initial use case.
An SBT “could be authentic proof that you have the position you say you have, or the education or certifications or credit score,” Chan said. “With [SBTs], you can be put on-chain without having to reveal your offline identity.”
You can read Phemex’s Web3 whitepaper here.