a16z backs ecosystem-specific 'arcade tokens' to power ecosystem growth without speculation

a16z argues that ecosystem-locked tokens, dubbed “arcade tokens,” could be pivotal in building stable, spendable digital economies. The firm suggested that these tokens, akin to airline miles or credit card points, provide crypto networks with utility that can grow without depending on speculation.

According to venture capital firm a16z’s report published last Thursday, arcade tokens exist within a specific software or product ecosystem to keep their values relatively stable. They allow users to perform functions within the ecosystem, and are way beyond what the community would deem “investment instruments.” 

“Arcade tokens are the blockchain-based equivalent of a type of asset that people are already familiar with: airline miles, credit card points, in-game digital gold, and so on,” the report read.

‘Arcade tokens are foundational for the blockchain,’ venture capitalists note

Venture capitalists at a16z, including researcher Scott Duke Kominers and CTO Eddy Lazzarin, asserted that arcade tokens are a foundational tool for crypto networks. 

“Just as stablecoins unlock new forms of commerce, and network tokens enable decentralized value-sharing and governance, arcade tokens can power digital economies at scale,” they wrote.

The firm doubled down on its hypothesis that arcade tokens are significantly different from network or security tokens purchased with investment returns in mind, because they are intended for spending. Users can access services or applications through arcade coins, much similar to how players in games buy or sell items through “digital tokens or gold.”

“You go inside; you trade cash for tokens, typically physical ones; then you use those tokens to play a few rounds of Galaga, Gator Panic, or whatever else you’re into. The tokens let you participate in the arcade’s economy,” the research explained.

The report is against labeling them “utility tokens,” since such terminology implies other tokens lack utility, which is not accurate. Holders sometimes use alternative names like “points” or “loyalty tokens,” but this is mostly party to private ledgers or curated applications.

Moreover, a16z noted these tokens allow issuers to control supply and pricing to match user demand, where if twice as many customers arrive on a given day, the token supply could be increased for all users to participate. Prices can also be adjusted to reflect advancements to the ecosystem, like new games, more features, or upgraded rewards.

Issuers can implement dynamic pricing, adjusting token costs or purchase prices to meet or solve demand fluctuations. When tokens encourage loyalty, users will be more interested in purchasing them, and this could attract more developers, merchants, or service providers. 

Finally, economic controls allow issuers to burn tokens on redemption, track liabilities on-chain, and apply monetary policies such as those seen in central banking.

Arcade tokens have real-world applications

According to the report’s assessment of how arcade token value can be determined, the coins are redeemable through mechanisms that remove tokens from circulation, called “sinks.” In an arcade context, sinks are the game “slots,” where each token inserted allows a user to play. 

If one game costs a single token, its value can be pegged to say, 25 cents. a16z researchers mentioned that issuers can also set a buyback price slightly below the initial issuance price, so it can always be redeemed for a guaranteed amount. 

“An issuer can guarantee that it will always pay, say, 20 cents apiece to buy back those 25-cent tokens. This establishes a floor under which the price should not drop,” the report deduced.

a16z cited hospitality-tech startup Blackbird’s native FLY token as an example, a coin launched in mid-2024 in a Web3 payments platform for restaurants. The token incentivizes adoption by rewarding users and enabling redemption at participating venues. 

According to the venture capital firm’s insight, FLY operates on a purpose-built blockchain layer supported by a network token, combining secure network operations with customer-facing arcade functionality.

Other applications existing in decentralized computing networks include security, compute providers incentives, and cultivating engagement among end users. In the last application model, arcade tokens could encourage network participation without granting ownership of the underlying infrastructure.

“With greater regulatory clarity, we expect more builders and users to recognize the benefits of arcade tokens as more projects, including those not native to crypto, explore their utility,” the research concluded.

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