The business of tokens
Deep Dives
Explore related topics with these Wikipedia articles, rewritten for enjoyable reading:
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Seigniorage
12 min read
The article discusses arcade tokens as managed currencies with controlled supply and price stability - seigniorage is the fundamental economic concept behind the profit an issuer makes from creating currency, directly relevant to understanding why companies would create proprietary tokens rather than accept existing currencies
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Loyalty program
15 min read
The article explicitly compares arcade tokens to airline miles and credit card points. Understanding the history, economics, and psychology of loyalty programs provides essential context for why these token systems work and their decades of precedent in traditional business
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Network effect
13 min read
The article mentions tokens helping companies 'grow their network effects' and discusses marketplace dynamics and fee switches - network effects are the core economic phenomenon that makes these tokenized ecosystems valuable and explains the strategic timing decisions discussed
IN THIS EDITION
Arcade tokens, explained — and how companies can use them
To fee or not to fee is not the question — more on when, not whether, to flip the fee switch
News and updates — from the SEC Secretary on categorizing tokens to the latest industry moves incorporating crypto
THE BUSINESS OF TOKENS
Arcade tokens: The most underappreciated token type
Scott Duke Kominers, Eddy Lazzarin, Miles Jennings, and Tim Roughgarden
One of the least explored and most underappreciated types of tokens out there is the arcade token.
Despite the playful name, arcade tokens are a powerful, programmable economic tool that unlocks a new area of the crypto design space; they’re uniquely useful for crypto companies looking to manage economies or grow their network effects without the noise of speculation.
So what is an arcade token? They’re tokens with a relatively stable value within a specific software or product ecosystem, often managed by an issuer (like a company). Think of them like the blockchain-based equivalent of airline miles, credit card points, in-game digital gold, and so on.
All of these are currencies that are internal to, and support the functioning of, a marketplace economy. For example, frequent flyer miles and rewards points can encourage brand loyalty and be used for flight upgrades.
While companies have used assets like these for decades, almost all previous instances have existed on centralized databases, limiting ownership, transferability, and user choice. Arcade tokens on public blockchains differ in that they are open, interoperable, and composable, which gives them a range of new market design benefits.
To expand on the 7 different types of tokens we’ve shared, this new post answers the most common questions we’ve heard about arcade tokens: what they are, what they do, why they have value, how builders can use them, the design tradeoffs they entail, and the opportunities they present.
More on what is — and isn’t — an arcade token
At a technical level, arcade tokens are just digital currencies intended for spending within their associated application ecosystems — with supply and demand managed flexibly to maintain price stability. Think of them foremost as currencies within a digital economy.
Whether or not you’ve visited an arcade, you’re probably familiar with the concept. You go inside; you trade cash for tokens, typically physical ones; then you use those tokens to play a few rounds ...
This excerpt is provided for preview purposes. Full article content is available on the original publication.