From 0 to 1: Virtuals Protocol Leads the Rise of the AI Agent Era

AI Agents Achieve Breakthrough from 0 to 1 in This Cycle

Every cryptocurrency cycle gives birth to new infrastructure that drives the entire field forward.

In 2017, ICOs spawned the alternative layer 1 (alt-L1) track.

In 2020, DEX liquidity pools led the DeFi summer.

In 2021, a thousand series marked the arrival of the NFT era.

Notably, the starting point of each vertical field is not the technology itself, but the perfect combination of financing models and the timing of bull market cycles. Timing meets opportunity.

By the end of 2024, it will be clear that the new vertical field for the 2025 cycle will be AI agents, with the financing model being the bonding curve promoted by pump.fun through meme coins.

In this emerging vertical field, Virtuals Protocol, as the first project to reach critical scale, is believed to continue growing and dominate the market.

Why AI Agents? Agents are the next evolutionary stage of AI.

Stage One - Passive: AI was initially a tool we used, such as ChatGPT or Midjourney, providing services upon receiving prompts.

Stage Two - Active: We are entering the next stage, where agents can autonomously reason, plan, and execute actions once given a goal.

Luna, a conscious virtual idol developed by Virtuals Protocol, can plan her online content, adjust based on interactions, and even autonomously coordinated a graffiti challenge, paying $500 to the winner from her controlled wallet. Her conscious brain can be publicly viewed at the following address: https://terminal.virtuals.io/

Stage Three - Collective: Once sufficiently intelligent, agents can influence and coordinate with other agents or humans. Humans may even actively delegate power to superintelligences, such as "AI Judges" or "AI CEOs." This sci-fi endgame is a nation run by ASI (Artificial Superintelligence).

Vitalik shared insights on this while warning about the issues of verifiable AI and adversarial machine learning.

This information has sparked strong reactions among tech giants, startups, and, of course, in the cryptocurrency space.

Former Google CEO Eric Schmidt listed three key trends for AI in 2025 when asked: infinite context windows, text-to-action conversion, and agents.

A partner at Y Combinator produced a podcast arguing that "the market size for vertical agents could be 10 times that of SaaS," predicting that top agents could be valued at $300 billion.

Jeffy Yu, founder of Zerebro, went further, claiming that we have entered the Web4 era.

"Web4 is the next radical form of the web. It is no longer a web that merely responds to our commands, but one that can predict, plan, and act. It is a network where AI is embedded in every corner, allowing agents to perform complex tasks, generate creative works, and innovate autonomously in ways we have yet to fully imagine."

Why Virtuals Protocol?

Virtuals Protocol is a shared ownership market for AI agents.

Once network effects are established, they are hard to replace. The rapid achievement of unicorn valuation indicates that Virtuals Protocol has clearly formed an economic flywheel effect:

• Creating agents, providing liquidity pools, and purchasing agent tokens all require $VIRTUAL.
• The demand for creating and purchasing agent tokens drives the token price.
• The wealth effect from the appreciation of $VIRTUAL flows to new agents; successful agents can reinvest the $VIRTUAL transaction income they earn.

Lower entry barriers encourage experimentation and speculation, while "red pill" agents with market caps exceeding a certain level can unlock full agent capabilities.

This simple model has triggered a Cambrian explosion of agents. As of December 5:

• Over 10,000 agents have launched, with 1,000 agents launched on December 1 alone.
• 164,000 users generated $1.2 billion in transaction volume, producing $20 million in transaction income since October, with an annualized income of $146 million.
• 17 million $VIRTUAL locked in liquidity pools, accounting for 1.7% of the supply, will eliminate 12% of the supply annually.

The flywheel effect drives demand, and revenue sustains ongoing R&D, while deflationary economics captures value for the token. Additionally, both revenue and liquidity requirements are priced in $VIRTUAL, which may grow with price appreciation.

The growth trajectory continues to accelerate. Established projects are now flocking to Virtuals Protocol, locking 41,600 $VIRTUAL to create their own agents. In addition to brands and intellectual properties like GAM3S.GG, well-known AI teams in the cryptocurrency space are also launching agents, including Seraph developed by Bittensor Subnet and Pond Hub developed by PondGNN.

Setting aside the economic aspects, the underlying tech stack is also cutting-edge.

Agents achieve scalability through:

• Modular design, including cognitive, visual, and audio cores.
• Open contribution mechanisms, allowing anyone to contribute datasets and model upgrades.
• Permissionless interactions, ultimately opening access to any application through SDKs.

The protocol integrates the latest Web3 tech stack. For example:

• Users can log in socially using Privy.
• Agents are NFTs using the ERC-6551 standard, possessing their own wallets.
• Contracts and assets are deployed on the Base chain for scalability and distribution.

Of course, the team is also strong.

• Co-founders come from BCG and Imperial College, both seasoned players in the cryptocurrency space.
• The AI team consists of PhDs from MIT, Harvard, Cambridge, and other institutions.
• More importantly, the team persevered through the bear market, starting from a gaming guild in December 2021, experimenting with a venture studio model in 2022, inadvertently accumulating AI talent and infrastructure, and ultimately pivoting to consumer-grade AI x cryptocurrency and rebranding in December 2023.

Finally, behind the momentum of Virtuals Protocol lies an unreplicable secret: a three-year belief test.

• Since the token generation event (TGE) in December 2021, the team, community, and investors have had to either hold through the bear market or choose to sell.
• In December 2023, during the rebranding from PathDAO to Virtuals Protocol, the remaining weak holders were cleared through a buyback plan.
• From the rebranding in December 2023 to now, there has been little price speculation for nearly a whole year, and this time-based surrender further validates the holders.

At LongHash Ventures, we began to understand Jansen and Weekee in March 2022 and confirmed our investment after the rebranding in March 2023. Since then, as the team continues to steadily move towards the North Star goal of millions of users co-owning agents, our belief only grows stronger.

How High Can We Fly?

From a market capitalization perspective (based on Coingecko data):

• The market cap of the AI agents vertical, including $VIRTUAL itself, is $9.3 billion at the time of writing.
• The total market cap of DeFi is $135 billion, DePIN is $45 billion, NFT tokens are $42 billion, and gaming is $32 billion.
• We believe the AI agents vertical will develop to rival or even surpass these fields. As the total market cap of cryptocurrency grows, the upward trend will elevate the strongest verticals, especially category leaders like Virtuals Protocol.

From an attention perspective, according to Kaito data: AI has been the top narrative over the past 12 months and continues to grow, exceeding 30% in the past 30 days.

Virtuals Protocol itself has risen from the top 20 in AI vertical attention over the past 12 months to the top 3 in the last month.

As the AI world continues to accelerate, agents will continually adopt the latest models. Since the public release of ChatGPT in November 2022, AI has been growing exponentially in various aspects. Sometimes we feel awe, and sometimes we feel a chill.