blockchain-based reward tokens are an essential component for scaling digital economies by encouraging user participation and building closed product economies. The so-called “arcade tokens” are designed to be stable and redeemable within an ecosystem, presented as an alternative to volatile cryptoassets. The thesis carries direct implications for product design, investors, and regulatory compliance.
Arcade tokens as reward units oriented toward spending within a product, functionally equivalent to airline miles or loyalty points. In one sentence: they are utility and redemption tokens designed to circulate within a product economy and not for speculative accumulation.
In practice, users would obtain these units for specific actions —participation in games, consumption or tasks— and redeem them for assets within the platform, exclusive features or real-world goods and services. The model centers on earning through specific in-product behaviors and redeeming value without leaving the platform’s economy.
The firm distinguishes these tokens from “network tokens” and proposes a dual model that separates the experiential layer —a currency of use to drive engagement— from the consensus and security layer. Among cited cases are play-to-earn games (ILV in Illuvium), move-to-earn models like SuperWalk and loyalty applications that use their own tokens (e.g. $FLY from Blackbird). These examples illustrate how a currency of use can drive engagement while infrastructure tokens handle security and governance.
This approach favors “spend-centric” economies and allows developers to issue tokens to subsidize growth, fund grants and align incentives without the value leaving the ecosystem. At the market level, the thesis emphasizes potential in sectors such as Web3 gaming; the adoption of tokenized economies is cited as a factor in growth projections for the gaming market in 2024–2025, which supports the idea that stable digital rewards can shift the adoption curve.
Regulation and effects of blockchain-based reward tokens
The proposal from a16z includes an active regulatory strategy built around a “safe harbor” for utility tokens like arcade tokens, distinguishing them from securities. The firm rejects the interpretation that would require dApp developers to register as brokers, a measure that, according to its argument, would introduce obligations incompatible with the decentralized nature and could require custody of assets foreign to the protocol’s design.
From a compliance perspective, this request raises two fronts: the need to clarify when a token is a financial instrument and when it is a product reward, and the practical implementation of KYC/AML controls and custody without disincentivizing innovation.
A conflict of interest also emerges: a16z has significant resources committed to crypto (the firm reports billions in investments), which reinforces its ability to influence regulatory frameworks and market narratives.
Impact for product and investors: the proposed tokenomic design seeks stability in the user experience and mechanisms to prevent value leakage, but requires governance, traceability and operational controls that reduce abuse risk and ensure compliance.
The thesis that reward tokens can scale digital economies combines product design with regulatory pressure and capital backing. Its effective adoption will depend on regulatory clarity regarding token classification and on projects’ ability to implement traceable tokenomics compatible with KYC/AML.
