Why Soulbound Tokens Are a Flawed Implementation of Verifiable Credentials

SBTs are a data model mismatch. They implement identity attestations as immutable, public NFTs, which violates the core privacy and user-control principles of the W3C Verifiable Credentials standard.

The flaw is architectural, not conceptual. SBTs treat credentials as state, while VCs treat them as portable messages. This forces all verification logic onto the chain, creating permanent data leaks and scalability issues that standards like Iden3's zk-proof VCs avoid.

Evidence: The Ethereum Attestation Service (EAS) and Verax registries demonstrate the correct pattern—storing only cryptographic commitments on-chain while keeping private data off-chain, a design SBTs ignore.

SBTs are a data model mismatch. The ERC-721 standard is designed for unique, tradable assets, not for mutable, revocable attestations. This forces credential data onto a public ledger, creating permanent storage costs and privacy leaks that verifiable credentials (VCs) like W3C standards explicitly avoid.

The on-chain permanence is a bug. A credential's validity must be revocable and its data selectively disclosable. SBTs, by their immutable nature, create a permanent record of expired or revoked statuses, violating core principles of identity systems like Decentralized Identifiers (DIDs) and Verifiable Credentials.

Privacy is an afterthought. Every SBT mint is a public event, exposing credential metadata and holder relationships. Frameworks like Iden3's zkProofs and Veramo handle this with zero-knowledge proofs, proving claims without revealing the underlying data, which SBT architecture cannot natively support.

Evidence: The gas cost to store a simple credential as an SBT on Ethereum mainnet exceeds $50, while off-chain VC protocols like Ceramic Network or Ethereum Attestation Service (EAS) handle millions of attestations for negligible cost with built-in revocation.

Public permanence destroys privacy. SBTs publish credentials directly on-chain, creating immutable, public records of identity. This violates the core VC principle of selective disclosure, where users prove specific claims without revealing the underlying data or the credential's existence.

On-chain logic lacks revocation. Revoking a compromised SBT requires a centralized issuer to burn tokens or update a smart contract, a clunky process compared to the cryptographic revocation lists or status registries defined in the W3C Verifiable Credentials standard.

The issuer retains control. SBTs are typically non-transferable but not user-owned. The issuer's smart contract governs the token's lifecycle, contradicting the VC model where the holder possesses and controls the credential. This recreates Web2's platform dependency.

Evidence: The Ethereum Name Service (ENS) demonstrates the risk. An ENS name functions as a public, permanent SBT. Linking it to off-chain identities creates a global correlation database, a problem projects like Semaphore or Aztec Protocol aim to solve with zero-knowledge proofs.

SBTs leak private data by default. Publishing credentials like university degrees or employment history on a public ledger is a privacy disaster. This violates core principles of data minimization championed by the W3C Verifiable Credentials standard.

On-chain storage is economically flawed. Storing static credential data on Ethereum or L2s like Arbitrum wastes expensive block space. Off-chain solutions like Ceramic Network or IPFS with on-chain proofs are more efficient.

Revocation is a critical failure. SBTs lack a standardized, secure revocation mechanism. A compromised private key means credentials are permanently valid, unlike the cryptographic revocation lists used in proper VC systems.

Evidence: The Ethereum Name Service (ENS) demonstrates the scaling cost; storing millions of text records on-chain is a multi-million dollar inefficiency that SBTs would replicate.