More crypto projects should consider using the blockchain-based equivalent of airline miles to expand their user base and boost the economy, according to executives at venture capital firm a16z.
In a report released on Thursday, a16z said that one of the most undervalued token types in cryptocurrencies is called “arcade tokens.”
These tokens maintain a relatively stable value within a particular software or product ecosystem, similar to airline mileage awards, credit card points, or in-game currency. These allow users to perform specific functions within that ecosystem rather than being held for speculative purposes.
“Although Arcade Tokens are not suitable for every use case, they have become an important building block in the evolution of crypto networks.”
“Just as stablecoins enable new forms of commerce and network tokens enable decentralized value sharing and governance, arcade tokens can power the digital economy at scale,” said a16z researcher Scott Duke Commers and chief technology officer Eddie Lazzarin.
Arcade token usage status
One such project, according to a16z, is hospitality technology startup Blackbird and its native $FLY token. The project will launch a Web3 payment platform for restaurants in mid-2024, and $FLY is designed to reward users and drive adoption of the service.
“Blackbird’s $FLY token allows users to redeem the token at any participating restaurant, with the redemption activity managed on a dedicated blockchain layer powered by network tokens,” the report says, pointing out other use cases as well.
“A decentralized computing network might, for example, use network tokens for security and incentives among computing providers, and arcade tokens to establish network effects among its customer base.”
“For example, frequent flyer miles and reward points can foster brand loyalty and can be used to purchase airline tickets or upgrades. Digital gold can be used to buy and sell items within video games,” they explained, adding:
“Rather than granting the holder ownership rights in the underlying ecosystem, the Arcade Token grants the holder the ability to access or use specific applications or services. Importantly, its market value is designed to: programmatically restricted”
The report also claimed that arcade tokens could provide significant utility for “spending-centric economies or the integration of the physical world.”
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Advantages of using arcade tokens include price stability and ease of use. This makes it easier for users to understand what they are spending, simplifies accounting, and simplifies tokenomics for issuers.
Comparison of Arcade Tokens with Stablecoins and Other Assets
The report also highlights that while stablecoins can be used for similar purposes, the flexible dynamics of arcade tokens offer other opportunities.
For example, issuers could essentially “print arcade tokens on demand” to support ecosystem growth through grants, user and developer subsidies, etc., while also incentivizing users to keep their funds within the economy rather than spending them elsewhere.
However, the report outlines that not all projects need to use them, as they lack practicality in speculative environments or where networks and platforms already have well-established tokens and ecosystems.
“For example, layer 1 blockchain networks with their own network tokens typically do not require Arcade tokens to function,” they argued.
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