Maybe arXiv could keep the free preprints but offer a service on top. Humans, experts in the field, would review submissions, and arXiv would curate and publish the high quality ones, and offer access to these via a subscription or fee per paper....
I'm guessing this is why they are mandating that submitted position or review papers get published in a journal first.
Of course we already have a system that does this: journals and conferences. They’re peer-reviewed venues for showing the world your work.