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We have recently organized a brand new, comprehensive classification system for token types, which includes network tokens, collectible tokens, and meme coins. Among the seven types we identified, arcade tokens are the least known and most underrated: a type of token that has relatively stable value within a specific software or product ecosystem, typically managed by the issuer (such as a company).
Essentially, arcade tokens are a form of blockchain-based asset, similar to certain assets that people are already familiar with: such as airline miles, credit card points, in-game digital coins, and so on. Their commonality lies in the fact that they are currencies that circulate within the market economy and support its operation: for example, frequent flyer miles and reward points can enhance brand loyalty and can be used to purchase airline tickets and upgrades; digital coins allow you to buy and sell items in video games.
Although enterprises have used such assets for decades, almost all past cases existed in centralized databases, which limited ownership, transferability, and user choice. In contrast, arcade tokens based on public blockchains are different; they possess openness, interoperability, and composability, which grant them a range of new market design advantages.
This article aims to answer the most frequently asked questions we receive about arcade tokens: what they are, what their purpose is, why they have value, how developers use them, the design trade-offs involved, and the opportunities they present.
What is an arcade token?
From a technical perspective, arcade tokens are essentially digital currencies used within their related application ecosystems—where their supply and demand are flexibly managed to maintain price stability. You can initially regard them as a form of currency in the digital economy.
So, where does the term “arcade token” come from? Whether or not you've been to an arcade, you may be familiar with the concept: you walk in, exchange cash for tokens (usually physical tokens), and then use those tokens to play a few rounds of Galaga, Gator Panic, or any other game you enjoy. These tokens allow you to participate in the economic system of the arcade.
The metaphor of an arcade clearly illustrates how these tokens operate: arcade tokens have relatively stable value within their respective economic systems—whether within a single service or across multiple services. The relative stability of arcade token value distinguishes them from other types of tokens, such as those whose value derives from underlying assets (like asset-backed tokens or collectible tokens), decentralized network market operations (like utility tokens), or speculative investments in specific entities (like company-backed tokens or security tokens).
Although the name sounds humorous, arcade tokens are a powerful programmable economic primitive — they are key to unlocking new realms of cryptocurrency design space.
What is not an arcade token?
To reiterate, the most fundamental difference between arcade tokens and other types of tokens is that arcade tokens are not intended for investment or speculation. Unlike the typical expectation of gaining investment returns through the purchase of network tokens or security tokens, arcade tokens are meant for consumption.
People sometimes refer to arcade tokens as “utility tokens” because they are designed to provide utility functions. We avoid using this label because it implies that other types of tokens lack utility, which is not the case. (For more information, please refer to our article on “Token Definitions.”) Other names for arcade tokens include “points” (although in everyday language, this usually means that the associated records are kept on a private ledger rather than a public blockchain) and “loyalty tokens” (which refers specifically to a certain application).
This does not mean that the value of arcade tokens will never change — as we describe below, the price of purchasing arcade tokens may slightly vary over time. However, arcade tokens are generally supplied in unlimited quantities at the current price, and they do not offer, promise, or imply any financial returns. This means that they are typically not suitable as investment products and are therefore usually not under the jurisdiction of U.S. securities laws.
This does not mean that the value of arcade tokens will never change – as we will elaborate below, the purchase price of arcade tokens may experience slight fluctuations over time. However, arcade tokens are typically supplied in unlimited quantities at the current price, and they do not provide, promise, or imply any financial returns. This means that they are generally not suitable as investment products and are therefore usually not subject to U.S. securities laws.
What is the use of arcade tokens? Why should developers consider using them?
Arcade tokens enable developers to mint and distribute value in the digital economy. Crucially, this ability to create and distribute value can incentivize user behavior, drive early growth, and generate network effects—without relying on external capital or speculative demand.
This principle is very simple and aligns well with the example of an arcade: if you run an arcade, you would definitely want to control the supply of tokens to keep the issuance amount consistent with customer demand. For example, if the number of customers doubles one day, issuing about twice the number of tokens might be more helpful, so that all customers can play the games they want (of course, provided there are no capacity limits). Since it is possible to issue enough tokens, why would you want to turn customers away?
You may also need to be able to adjust prices: if you make significant improvements to the arcade itself—such as doubling the number of games, introducing more advanced and feature-rich machines, or offering more generous prizes—you may increase the price of each token. In short, you need to flexibly control your economic system in order to better balance supply and demand (in addition, it can showcase the value of your arcade to customers).
In addition to optimizing daily operations, this economic control also helps establish long-lasting connections with the most loyal customers. For example, you can issue reward tokens to the most active players. More importantly, when people have some tokens left in their pockets at the end of the day, it incentivizes them to return to your arcade, as these tokens can be used there.
More formally, arcade tokens support:
Dynamic Pricing and Promotions: Arcade token issuers can adjust token prices, modify the purchase price in tokens, or both. This allows them to discount products or services during periods of low demand or reward consumption during peak times.
Network effects: Similar to airline miles and credit card reward points, users who acquire or hold tokens are more likely to remain loyal to the brand. The value of this established user base encourages merchants, developers, and other service providers to engage more in collaboration, thereby enhancing user value—this is the typical platform network effect.
Incentives and Loyalty Rewards: Arcade token issuers can provide rewards and other benefits to customers who complete specified actions. They can also leverage issuance rights to offer rewards when network participants accept or redeem tokens. All of this reinforces the network effects described earlier.
Economic control: Arcade token issuers can destroy tokens during redemption, track liabilities on-chain, and implement monetary policies similar to those of central banks—while keeping supply and pricing within a predictable range.
How do arcade tokens work?
Analysis of Economic Dynamics
The economic dynamics of arcade tokens distinguish them from other types of tokens. Arcade tokens do not grant holders ownership of the underlying ecosystem, but rather grant holders the right to access or use specific applications or services; crucially, their market value is designed to be programmatically restricted. This does not mean that arcade tokens must be pegged to the price of fiat currency like stablecoins; it simply means that issuers can use certain mechanisms to set price floors and, more importantly, price ceilings.
Arcade tokens are typically freely purchased at a predetermined price. Think of the token vending machines in an arcade on the boardwalk: you walk up, insert a dollar, and the machine gives you four tokens, each priced at 25 cents. These token vending machines, often referred to as “faucets” or “valves,” actually set a price ceiling, and the market value should never exceed this limit. Therefore, arcade tokens do not have investment value: they are meant for consumption, not speculation.
The value of a token can be assessed based on its redeemable value through any “consumption mechanism” (i.e., the mechanism by which tokens exit circulation). In arcade games, the “consumption mechanism” refers to the game's “coin slot”—that is, you can only play by inserting coins. If playing a game requires one token, then its value should be 25 cents. Alternatively, the arcade can also set a buyback price slightly lower than the initial token price; this way, the issuer can ensure that these tokens valued at 25 cents are always bought back at 20 cents each. This establishes a price floor, meaning that the token price should not fall below this floor.
Consider the impact of these parameters on the market: If you know you can buy the same tokens from a faucet (or vending machine) at a quarter of the price anytime, would you still spend a dollar to buy a token worth 25 cents from a speculator? Absolutely not—it’s simply unreasonable! (Or rather, it’s just not worth it.) Someone who is moving to another city might stand outside an arcade trying to sell his remaining 25-cent tokens at a price of 22 cents each, but no one would pay more than 25 cents for them. Therefore, while some people might choose to sell their arcade tokens at a discount (for example, if they are completely leaving this ecosystem), the price of the tokens should remain relatively stable at any given point in time.
All these non-speculative factors make arcade tokens particularly suitable as a foundation for a controlled market economy. It is important to note that this does not depend on whether the usage scope of arcade tokens is narrow (limited to a single application or service) or broader—they are simply a result of the “tap/exchange” design of the arcade tokens. (Continuing with the arcade example: even if the local grocery store owner is a video game enthusiast and chooses to accept tokens from local arcade games instead of cash payments, if you can simply walk into the arcade and buy tokens for 25 cents, then there is no reason to pay more than 25 cents for each token.)
Why not directly accept stablecoins as a payment method?
Arcade tokens conceptually overlap with stablecoins—both aim to facilitate economic transactions while maintaining relatively stable value. However, arcade tokens provide greater flexibility for developers. Issuers can print arcade tokens on demand (although they still need to track the “shadow” value of these tokens on their balance sheets—that is, the value of arcade tokens when redeemed). Issuers can then use these tokens to provide funding and subsidies to users, developers, and other network participants. Furthermore, these tokens incentivize participants to stay within a specific economic system rather than deploying funds elsewhere. (There is a reason airlines issue “miles” instead of directly giving cash rebates to frequent flyers; these miles must be used to purchase future flights.)
Arcade tokens can provide developers with more profit options. Issuers can sell tokens directly to users (at a fixed or dynamic price), package them into subscription plans, or distribute them through promotional activities. When partner networks agree to accept a certain arcade token, they can establish cross-promotion and affiliate marketing models—these strategies can expand each partner’s reach without external funding.
It is crucial that arcade tokens also allow issuers to finely control the flow of value within the economic system.
Limit transferability (for example, restricted to within the application or between whitelisted addresses),
Set depreciation or expiration dates (encourage timely use and reduce hoarding), and
Link the exchange to specific goods or services (aligning practicality with economic intent).
These features help strengthen the value of tokens as a medium of exchange rather than as speculative assets, and they can be encoded through on-chain programming. In short: arcade tokens can help initiate growth, encourage user participation, and manage the operation of the internal economy while granting their maintainers a certain degree of control.
The Power of Interoperability
As we have described, arcade tokens issued on public blockchains are similar to loyalty points or airline miles—but they have one main difference: they are on-chain, which means they can be open, interoperable, and composable.
Unlike traditional loyalty systems that confine value within a closed ecosystem, blockchain-based arcade tokens can be shared, accepted, and exchanged among multiple participants without permission—potentially even across competitors. Portability is a significant advantage: in this model, users can transfer their loyalty to different services, and their status can also be easily transferred (for example, unlike the cumbersome “status matching” processes of airlines today). This portability encourages market participants to compete on the quality of products and services, rather than merely pursuing user lock-in, and can transform decentralized loyalty programs into public goods.
So far, the $FLY token issued by Blackbird, founded by the founders of Resy and Eater, is considered one of the best on-chain arcade token cases. This token creates a loyalty program for restaurants similar to Starbucks' rewards card or McDonald's membership rewards program. It may sound familiar, but it is unique: the same token can be used at multiple different restaurants. Customers earn tokens after spending at restaurants within the Blackbird network, which can then be redeemed for discounts and other benefits at any participating restaurant. Since the underlying protocol is based on blockchain, all these operations can be done without direct interaction between the restaurants. Just as individual restaurant reward programs can enhance customer loyalty, the $FLY can simultaneously boost the loyalty of the entire restaurant network.
Consumers benefit from greater utility; businesses benefit from shared network effects.
The result is cooperative competition (rather than traditional competition): for example, the coffee shop near your home and Starbucks can both benefit from accepting the same token. While it may seem at first that neither coffee shop would want this to happen, a shared membership program enabled by arcade tokens can actually benefit both parties. Arcade tokens can complement the experiences of both Starbucks and the local coffee shop, allowing customers to receive offers that enhance the value for both when visiting either one. For instance, if one of them offers a free mocha coffee in exchange for arcade tokens, the value gained from purchasing coffee at both shops would increase. Such offers can enhance customer loyalty to the coffee chain network and encourage customers to allocate a larger portion of their budget to coffee.
This cooperative competition can bring more total surplus to the network, which can be distributed according to the sales proportion of each supplier. In other words, rather than fighting over shares of the cake, it is better to make the cake bigger.
Design trade-offs (and opportunities)
Arcade tokens are not suitable for all projects. In cases where speculative assets are needed, arcade tokens are inappropriate. For example, a layer blockchain network that has its own native tokens typically does not require arcade tokens to operate normally.
But for many projects—especially those with a consumer-centric economic model or those that integrate with the physical world—arcade tokens may be a highly attractive option. They have the following advantages:
Price stability: Achieved through a mechanism of price ceilings and floors as well as controlling the issuance volume.
Ease of use: Intuitive and stable value, helping users understand their spending situation.
Clarity in accounting: The cost on the balance sheet is the opportunity cost at which they can be redeemed—no more, no less.
Control: Issuers can manage them in a manner similar to central banks.
We also see that arcade tokens are gradually becoming a complement or precursor to network tokens. The Blackbird $FLY token allows users to redeem at any partner restaurant, and this redemption process is managed by a specially built blockchain layer powered by network tokens. For example, a decentralized computing network can use network tokens to ensure security and incentives among computing providers, while using arcade tokens to establish network effects among users. Alternatively, a marketplace platform can use arcade tokens to guide user participation and then gradually introduce network tokens during the decentralization of operational protocols. In these cases, arcade tokens can serve as an entry point, catalyzing early demand and helping the network gain initial user growth, after which the network will shift to a more decentralized system in the long term.
Regulatory Outlook
An example of an early arcade token is Quarters, which comes from the blockchain-based platform Pocketful of Quarters. Players can use Quarters tokens to gain features and rewards in participating games. Regarding the view that arcade tokens are not investment assets, Pocketful of Quarters received a no-action letter from the U.S. Securities and Exchange Commission (SEC) in July 2019. The SEC stated in the letter that they acknowledge that people use Quarters solely for participating in games, rather than for speculation or investment.
Despite this positive precedent, the no-objection letter from Quarters and the regulatory mechanisms in many states still have flaws. For example, they are skeptical about interoperability, viewing it as a vulnerability rather than a feature. Their reasoning stems from a mistaken belief that once interoperability exists, assets become easier to trade, thus possessing the characteristics of financial instruments. This perspective overlooks the fact that trading demand still depends on whether an asset has speculative upside potential - as we explained earlier, arcade tokens typically do not have such potential. Meanwhile, interoperability is one of the most exciting advantages of on-chain arcade tokens, bringing numerous benefits to consumers, including reduced trading friction and increased choices.
Clever design can alleviate regulatory concerns. Arcade tokens need not be limited to closed networks. Mechanisms such as price caps, faucet-sink models, and redemption mechanisms tied to usage allow issuers to programmatically curb speculative activities. Consumers can also benefit from interoperability as it enhances user experience, fosters competition, and creates broader network effects – ultimately promoting innovation and providing greater value to users without relying on financial speculation.
Although arcade tokens are not suitable for all scenarios, they are a crucial component in the evolution of the crypto network. Just as stablecoins have opened up new business models and network tokens have realized decentralized value sharing and governance, arcade tokens can also drive the development of the digital economy on a large scale.
With the increasingly clear regulatory policies, we expect more developers and users to recognize the advantages of arcade tokens, as more projects (including those that are not natively cryptocurrency projects) explore their uses.
