a16z: Arcade Tokens Surpass Stablecoins! Airline Mileage Model Reshapes the Encryption Economy

Venture capital firm a16z believes that ecosystem locked tokens, similar to airline miles, could be key for developers in creating a stable digital economy. a16z points out that one of the most underrated types of tokens in crypto assets is “Arcade Tokens.” These tokens maintain a relatively stable value within specific software or product ecosystems, similar to airline mile rewards, allowing users to perform specific functions within the ecosystem rather than speculating.

What is Arcade Token? The blockchain version of airline miles

(Source: a16z)

a16z elaborated on the core concept of arcade tokens in their report. “Frequent flyer miles and rewards points can enhance brand loyalty and can be used to purchase tickets and upgrades; digital coins allow you to buy and sell items in electronic games.” They added, “Arcade tokens do not grant holders ownership of the underlying ecosystem, but rather provide holders with the ability to access or use certain applications or services; crucially, their market value is designed to be restricted through mechanisms.”

This design concept stands in stark contrast to the current mainstream cryptocurrency token models. Most cryptocurrency tokens are designed as assets with speculative value, experiencing severe price fluctuations, and holders expect to profit from price increases. In contrast, the value of arcade tokens is deliberately stabilized within a predictable range, making them more suitable as a medium of exchange within the ecosystem.

The realization of this stability is usually achieved through algorithmic control of supply and demand. When the market price of arcade tokens exceeds the target value, the system can issue additional tokens to suppress the price; when the price is below the target value, the system can buy back or destroy tokens to support the price. This mechanism is similar to the monetary policy of a central bank, but is executed automatically on the blockchain, transparent and immutable.

The report also pointed out that arcade tokens can provide significant practical value for the “integration of consumption-centered economies or the physical world.” a16z believes that while arcade tokens are not suitable for all application scenarios, they represent a crucial component in the evolution of the crypto network's development. “Just as stablecoins have opened up new forms of business, network tokens have realized decentralized value sharing and governance, arcade tokens can drive the development of the digital economy on a large scale.”

Blackbird Restaurant Payment Platform's Practical Application

According to a16z, one of the projects is the hotel tech startup Blackbird and its native Token $FLY. The project plans to launch a Web3 payment platform for restaurants in mid-2024, aiming to reward users and promote the adoption of the service. The report states, “Blackbird's $FLY Token allows users to redeem at any participating restaurant, and this redemption is managed on a dedicated blockchain layer supported by the network Token.”

The case of Blackbird perfectly demonstrates the application logic of arcade tokens. Users earn $FLY tokens as rewards when participating in restaurant consumption. These tokens can be used in any restaurant within the ecosystem but cannot be freely traded in external markets (at least in the initial stage). This design ensures that the value of the tokens is primarily reflected in their consumption function within the ecosystem rather than their speculative value.

For restaurants, this model offers a low-cost customer loyalty program. Traditional point systems require a centralized database and management system, while blockchain-based arcade tokens can be executed automatically, reducing operational costs. For users, $FLY tokens offer universal rewards across restaurants, making them more attractive than single-restaurant point cards. For the Blackbird platform, arcade tokens create a network effect; the more restaurants there are, the more use cases for the tokens, and the more willing users are to participate.

a16z also listed other use cases: “Decentralized computing networks may use network tokens to ensure security and incentives among computing providers, while using gaming tokens to build network effects within the customer base.” This example shows that arcade tokens can be combined with traditional encryption economic models, where network tokens are responsible for decentralized governance and value distribution, while arcade tokens are responsible for user-level consumption and incentives.

$FLY # Three Core Advantages of Arcade Tokens

Price Stability: Allows users to easily understand their spending situation, simplifying accounting.

Usability: Similar to traditional points systems, lowering the learning threshold for users.

Ecological Lock-in: Encouraging users to stay within the economic system rather than spending their capital elsewhere.

Differences and Advantages of Arcade Tokens vs Stablecoins

![a16z Token definition]###https://img-cdn.gateio.im/webp-social/moments-87a9b3933a-fd1078ee07-153d09-cd5cc0.webp(

(Source: a16z)

The report also emphasizes that while stablecoins can be used for similar purposes, the flexibility and dynamics of arcade tokens provide other opportunities. For example, issuers can “mint arcade tokens on demand” to support ecosystem development, such as providing grants, user and developer subsidies, while encouraging users to stay within the economy rather than spending their funds elsewhere.

This flexibility is the key advantage of arcade tokens compared to stablecoins. Stablecoins such as USDC and USDT are pegged to the US dollar at a 1:1 ratio, which means the issuer must hold an equivalent amount of US dollar reserves, limiting their monetary policy flexibility. In contrast, arcade tokens do not need to be pegged to fiat currency; their value is entirely determined by supply and demand within the ecosystem, allowing issuers to flexibly adjust the supply based on the needs of ecosystem development.

For example, when the ecosystem needs to attract new users, the platform can issue additional arcade Tokens as registration rewards or referral rewards, without worrying about violating reserve requirements. When the ecosystem needs to reward developers for building new features, it can allocate arcade Tokens from the reserves as subsidies. This flexibility makes arcade Tokens an ideal tool for building autonomous economies.

However, the report points out that not every project needs to use them, as they lack practicality in a speculative environment or when the network or platform already has a well-established Token and ecosystem. a16z believes that “for example, a first-layer blockchain network with its own network coin usually does not need arcade tokens to operate.”

This limitation is very important. The most suitable scenario for arcade tokens is consumer-facing applications, especially those that require frequent small transactions, such as restaurant payments, in-game purchases, content subscriptions, etc. For DeFi protocols, Layer-1 blockchains, or infrastructure projects, the traditional network token model may be more appropriate, as the value proposition of these projects lies in decentralized governance and network security, rather than consumer convenience.

) a16z's Strategic Judgment on the Evolution of Crypto Assets Economy

“Although arcade tokens are not applicable in all use cases, they represent a crucial component in the evolution of the crypto network development process.” This judgment comes from a report by a16z researchers Scott Duke Komimers, CTO Eddy Lazzarin, and others. As one of the most influential venture capital firms in the crypto industry, a16z's viewpoints often guide the direction of industry development.

a16z's investment portfolio includes leading projects in the crypto industry such as OpenSea and Uniswap, and its judgment on market trends has already been validated. When a16z publicly advocates for a certain Token model, it often attracts a large number of projects to follow, forming industry trends. The introduction of the arcade Token concept may signify the beginning of the transition of the crypto economy from “pure speculation” to “practical consumption.”

This transformation is crucial for the long-term healthy development of the encryption industry. The current cryptocurrency market is primarily driven by speculation, with the value of most tokens deriving from people's expectations of future price increases rather than their actual utility value. This model creates severe price volatility and the risk of bubble bursts. The arcade token model attempts to establish a value system based on actual use, making the crypto economy more stable and sustainable.

From a16z's perspective, arcade tokens fill an important gap in the encryption economy. Stablecoins address the issue of value stability, network tokens solve the problem of decentralized governance, while arcade tokens address the issue of consumption incentives within the ecosystem. These three types of tokens together constitute a complete toolbox for the crypto economy.