Currently, there are 300,000 wallets holding at least one AI Proxy Token. Will this trend continue? What is the best strategy for AI proxies now? What are the development prospects and challenges facing the industry? This article provides some analysis.
1. The Rise of AI Proxies
In November, AI proxies attracted widespread attention, and people's focus gradually shifted from memecoins to this new hotspot. In fact, the early versions of AI proxies can be traced back to 2020, but the real craze was sparked this year, mainly thanks to the success of VIRTUAL - it achieved an astonishing 3000% growth in just one year. There are several key factors behind Virtuals' success:
Despite facing challenges of declining market share and increasing criticism, it persisted in adopting the @pumpdotfun model
Cleverly combined AI technology with the viral spread effect of memecoins
Created Luna, an AI internet celebrity, which is managed by Virtuals and has over 500,000 followers on TikTok
Launched on the Base platform, which has gathered a large number of memecoin traders
In the Web3 field, when a new category of protocol emerges and succeeds, investor interest will quickly rise, forming a snowball effect - or a bubble effect (if you prefer to describe it that way). Subsequently, a large number of people will rush in, chasing the next similar success story. In the past, we have witnessed this phenomenon in memecoins and Telegram trading bots. Will it be any different this time?
2. AI is Unstoppable
In 2024, the AI proxy industry experienced unprecedented growth. Venture capital in this field soared to $1 billion in a year, an 81.4% increase in trading volume compared to 2023. In the third quarter of 2024, the total venture capital in the AI field reached a peak of $18.9 billion, with AI proxies contributing 28%.
Another example that demonstrates investor confidence is that OpenAI completed a $6.6 billion financing, setting a record for the largest venture capital transaction ever.
3. AI Proxies in Web3: Prospects and Realities
AI proxies have many use cases in Web3, and with technological progress, they are expected to become even more powerful. Although this narrative is timely, its full potential is still evolving. In the current market environment, where asset prices are highly volatile, and you need to keep 100% of your assets in stablecoins to maintain the value of your portfolio, AI proxies designed for trading perform particularly well. We lack historical data to prove other possibilities.
Furthermore, AI trading bots are not a new phenomenon, as they have existed for many years, but they have not yet achieved mainstream adoption. If they are truly so profitable, why is this the case?
4. Will AI Proxies Become the Core of Market Hype?
I have always been skeptical, so my answer is no. The crypto market is full of speculation, with 10% being technology and narratives being fleeting. Remember the EigenLayer re-staking protocol that was once widely discussed? That was not so long ago, but its popularity has now significantly diminished.
AI proxies do have technological support and bring innovative use cases, but "novelty" often quickly becomes "normal." As more and more teams enter the development of AI proxies, competition will intensify, and inevitably, there will be more failure cases, leading to a gradual cooling of the hype.
Every popular trend in Web3 brings great opportunities and an exciting journey. The key is to profit in a timely manner and quickly move on to the next hotspot.
5. Technical Challenges
Even at the technical level, there are still many problems that need to be solved. Currently, most AI proxies have little connection to Web3 beyond the economic aspect.
However... the total market value of AI proxies is expected to double from $7 billion to $14 billion within two years. As new protocols and new use cases continue to attract user attention, this field will inevitably continue to grow.
In other words: the industry has huge potential, but the AI proxies at the forefront of the current hype may not be able to maintain their dominant position in the coming months.
6. Short-term Outlook
Now let's talk about the opportunities at hand: AI proxies on Solana are currently in a clear downturn. This view is mainly based on the article by @0xkyle__ on X, and I largely agree with it, but remember to always do your own research (DYOR).
Currently, liquidity is flowing into Altcoins and Base on centralized exchanges, and the market sentiment towards Solana is particularly pessimistic, especially the concerns about the SOL/ETH and SOL/BTC peaks. In this pessimistic atmosphere, two key bets are circulating in the crypto circle:
1) Solana will make a strong comeback and trigger a second wave of on-chain hype.
2) AI proxies will rebound accordingly.
Therefore, there are two possible investment strategies:
1) Large-cap AI: Invest in mature players like AI16Z and the potential TAO, which have already proven their worth.
2) Small-cap AI: Look for undervalued projects that focus on interactivity, applications, and virtual avatars, as this is the area that can generate asymmetric returns.
