One feature of World of Warcraft that is second nature to its players, but goes mostly undiscussed outside of gaming circles, is the concept of soulbound items. A soulbound item, once picked up, cannot be transferred or sold to another player.
Most very powerful items in the game are soulbound, and typically require completing a complicated quest or killing a very powerful monster, usually with the help of anywhere from four to thirty nine other players. 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.
The purpose of the mechanic is fairly clear: it keeps the game challenging and interesting, by making sure that to get the best items you have to actually go and do the hard thing and figure out how to kill the dragon. You can't just go kill boars ten hours a day for a year, get thousands of gold, and buy the epic magic armor from other players who killed the dragon for you.
Of course, the system is very imperfect: you could just pay a team of professionals to kill the dragon with you and let you collect the loot, or even outright buy a character on a secondary market, and do this all with out-of-game US dollars so you don't even have to kill boars. But even still, it makes for a much better game than every item always having a price.
NFTs in their current form have many of the same properties as rare and epic items in a massively multiplayer online game. They have social signaling value: people who have them can show them off, and there's more and more tools precisely to help users do that. Very recently, Twitter started rolling out an integration that allows users to show off their NFTs on their picture profile.
But what exactly are these NFTs signaling? Certainly, one part of the answer is some kind of skill in acquiring NFTs and knowing which NFTs to acquire. But because NFTs are tradeable items, another big part of the answer inevitably becomes that NFTs are about signaling wealth.
If someone shows you that they have an NFT that is obtainable by doing X, you can't tell whether they did X themselves or whether they just paid someone else to do X. Some of the time this is not a problem: for an NFT supporting a charity, someone buying it off the secondary market is sacrificing their own funds for the cause and they are helping the charity by contributing to others' incentive to buy the NFT, and so there is no reason to discriminate against them. And indeed, a lot of good can come from charity NFTs alone. But what if we want to create NFTs that are not just about who has the most money, and that actually try to signal something else?
Perhaps the best example of a project trying to do this is POAP, the "proof of attendance protocol". POAP is a standard by which projects can send NFTs that represent the idea that the recipient personally participated in some event.
POAP is an excellent example of an NFT that works better if it could be soulbound. If someone is looking at your POAP, they are not interested in whether or not you paid someone who attended some event. They are interested in whether or not you personally attended that event. Proposals to put certificates (eg. driver's licenses, university degrees, proof of age) on-chain face a similar problem: they would be much less valuable if someone who doesn't meet the condition themselves could just go buy one from someone who does.
While transferable NFTs have their place and can be really valuable on their own for supporting artists and charities, there is also a large and underexplored design space of what non-transferable NFTs could become.
This is a topic I have written about ad nauseam (see [1] [2] [3] [4] [5]), but it continues to be worth repeating: there are very bad things that can easily happen to governance mechanisms if governance power is easily transferable. This is true for two primary types of reasons:
If you take the proverb that "those who most want to rule people are those least suited to do it" seriously, then you should be suspicious of transferability, precisely because transferability makes governance power away from the meek who are most likely to provide valuable input to governance and toward the power-hungry who are most likely to cause problems.
So what if we try to make governance rights non-transferable? What if we try to make a CityDAO where more voting power goes to the people who actually live in the city, or at least is reliably democratic and avoids undue influence by whales hoarding a large number of citizen NFTs? What if DAO governance of blockchain protocols could somehow make governance power conditional on participation? Once again, a large and fruitful design space opens up that today is difficult to access.
POAP has made the technical decision to not block transferability of the POAPs themselves. There are good reasons for this: users might have a good reason to want to migrate all their assets from one wallet to another (eg. for security), and the security of non-transferability implemented "naively" is not very strong anyway because users could just create a wrapper account that holds the NFT and then sell the ownership of that.
And indeed, there have been quite a few cases where POAPs have frequently been bought and sold when an economic rationale was there to do so. Adidas recently released a POAP for free to their fans that could give users priority access at a merchandise sale. What happened? Well, of course, many of the POAPs were quickly transferred to the highest bidder.