Venture capital firm a16z is advocating for more cryptocurrency projects to integrate blockchain-based equivalents of airline miles, a concept they term "arcade tokens," as a strategic method for expanding their user bases and strengthening their internal economies.
In a report released on Thursday, a16z identified arcade tokens as one of the most overlooked token types within the crypto space. These tokens are designed to maintain a relatively stable value within a specific software or product ecosystem. Their function is analogous to airline miles rewards, credit card points, or in-game currencies, enabling users to perform specific actions within that ecosystem rather than being primarily held for speculative purposes.
“Though arcade tokens aren’t for every use case, they represent a critical building block in the evolution of crypto networks.”
Executives from a16z, including researcher Scott Duke Komimers and chief technology officer Eddy Lazzarin, stated that just as stablecoins facilitate new forms of commerce and network tokens enable decentralized value-sharing and governance, arcade tokens have the potential to power digital economies at scale.
Arcade Token Usage
The report highlights Blackbird, a hospitality-tech startup, and its native $FLY token as a prime example of arcade token implementation. Blackbird launched a Web3 payments platform for restaurants in mid-2024, with the $FLY token engineered to incentivize users and promote the adoption of the service.
According to the report, Blackbird's $FLY token allows users to redeem it at any participating restaurant, with this redemption process managed on a specialized blockchain layer powered by a network token. The report also pointed to other potential use cases:
“A decentralized computing network might, for example, use a network token for security and incentives among compute providers, while using an arcade token to establish network effects among the customer base.”
The a16z team explained that, similar to how frequent flyer miles and rewards points encourage brand loyalty and facilitate purchases, and how digital gold can be used for in-game transactions, arcade tokens offer a distinct utility. They elaborated that instead of granting holders ownership rights in an ecosystem, arcade tokens provide holders with the ability to access or utilize specific applications or services. Crucially, their market value is intended to be programmatically bounded.
The report further contended that arcade tokens can offer significant utility for economies focused on spending or for integrations with the physical world.
Key benefits associated with the adoption of arcade tokens include price stability and enhanced usability. These features simplify the process for users to understand their spending and for issuers to manage tokenomics. They also contribute to a more straightforward accounting process.
Stablecoins and Other Assets vs. Arcade Tokens
While stablecoins can serve similar functions, the report from a16z emphasizes that the flexible dynamics of arcade tokens unlock additional opportunities. For instance, issuers have the capacity to create arcade tokens on demand to support ecosystem expansion, such as through grants and subsidies for users and developers. This approach also encourages users to remain engaged within the ecosystem rather than moving their funds elsewhere.
However, the report acknowledges that arcade tokens are not universally applicable. They may lack utility in speculative environments or in situations where a network or platform already possesses a well-established token and ecosystem. The report argued that, for example, layer one blockchain networks that already have their own network tokens typically do not require arcade tokens to operate effectively.