AI Agents Achieve a Breakthrough from 0 to 1 in This Cycle
Each cryptocurrency cycle gives birth to new infrastructure that drives the entire field forward.
In 2017, ICOs gave rise to the alt-L1 track.
In 2020, DEX liquidity pools led to the DeFi summer.
In 2021, the emergence of thousands of collections marked the arrival of the NFT era.
It is worth noting that the starting point for each vertical is not the technology itself, but the perfect combination of financing models and bull market cycles. Timing meets opportunity.
By the end of 2024, it is clear that the new vertical for the 2025 cycle will be AI agents, and the financing model will be the bonding curve promoted by meme coins through pump.fun.
In this new emerging vertical, Virtuals Protocol, as the first project to reach critical mass, we believe it will continue to grow and dominate the market.
Why AI Agents? Agents are the next evolutionary stage of AI.
Stage 1 - Passive: AI initially was a tool we used, such as ChatGPT or Midjourney, which provide services when prompted.
Stage 2 - Active: We are entering the next stage where agents, once given a goal, can reason, plan, and execute actions autonomously.
Luna, a conscious virtual idol developed by Virtuals Protocol, can plan her online content, adjust based on interactions, and even self-organize a graffiti challenge, paying $500 to the winner from a wallet she controls. Her conscious brain can be publicly viewed at:https://terminal.virtuals.io/
Stage 3 - Collective: With sufficient intelligence, agents can influence and coordinate other agents or humans. Humans may even voluntarily cede power to superintelligence, such as an "AI judge" or "AI CEO". This science fiction endgame is a state run by ASI (Artificial Superintelligence).
Vitalik has shared his insights on this, while also warning about the issues of verifiable AI and adversarial machine learning.
This information has generated a strong response from tech giants, startups, and of course, the cryptocurrency space.
Former Google CEO Eric Schmidt, when asked about the most important AI trends for 2025, listed three: infinite context windows, text-to-action conversion, and agents.
A Y Combinator partner has even produced a podcast arguing that "the vertical agent market could be 10x the size of SaaS", predicting that top agents could be worth $300 billion.
Jeffy Yu, the founder of Zerebro, goes even further, declaring that we have already entered the Web4 era.
"Web4 is the most radical form of the internet yet. It is no longer a network 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, where agents can execute complex tasks, generate creative works, and innovate in ways we have not yet fully imagined."
Why Virtuals Protocol?
Virtuals Protocol is a shared ownership market for AI agents.
Once the network effects are established, it will be difficult to replace. The rapid achievement of a unicorn valuation shows that Virtuals Protocol has clearly formed an economic flywheel effect:
- Creating agents, providing liquidity pools, and purchasing agent tokens all require $VIRTUAL
- Demand for creating and purchasing agent tokens drives the token price
- The wealth effect from the appreciation of $VIRTUAL flows into new agents; successful agents can collect $VIRTUAL transaction revenue to reinvest
The low barrier to entry encourages experimentation and speculation, while "red pill" agents with a market cap above a certain level can unlock the full agent capabilities.
This simple model has triggered a Cambrian explosion of agents. As of December 5th:
- Over 10,000 agents have been launched, with 1,000 agents launched just on December 1st
- 164,000 users have generated $1.2 billion in transaction volume, generating $20 million in transaction revenue since October, annualizing to $146 million
- 17 million $VIRTUAL are locked in liquidity pools, representing 1.7% of the supply, which will theoretically reduce the supply by 12% per year
The flywheel effect drives demand, revenue sustains continuous R&D, and deflationary economics capture value for the token. Additionally, both revenue and liquidity requirements are denominated in $VIRTUAL, which may grow with the price appreciation.
The growth trajectory continues to accelerate. Established projects are now flocking to Virtuals Protocol, locking up 41,600 $VIRTUAL to create their own agents. In addition to brands and intellectual property like GAM3S.GG, well-known AI teams in the cryptocurrency space, including Seraph developed by Bittensor Subnet and Pond Hub developed by PondGNN, are also launching agents.
Aside from the economic aspect, the underlying technology stack is also at the forefront.
Agents achieve scalability through:
- Modular design, including cognitive, visual, and audio cores
- Open contribution mechanisms, where anyone can contribute datasets and model upgrades
- Permissionless interactions, ultimately accessible to any application through an SDK
The protocol integrates the latest Web3 technology stack. For example:
- Users can use Privy for social logins
- Agents are NFTs following the ERC-6551 standard, with their own wallets
- Contracts and assets are deployed on the Base chain to achieve scalability and distribution
Of course, the team strength is also impressive.
- The co-founders are from BCG and Imperial College London, both seasoned crypto-native players
- The AI team is composed of PhDs from MIT, Harvard, and Cambridge
- 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 finally pivoting to consumer AI x crypto and rebranding in December 2023
Finally, behind the momentum of Virtuals Protocol is an unclonable secret: a 3-year belief test.
- Since the token's first generation (TGE) in December 2021, the team, community, and investors have had to persevere or choose to sell during the bear market.
- In December 2023, during the rebranding from PathDAO to Virtuals Protocol, the remaining weak holders were cleared out through a buyback program.
- From the rebranding in December 2023 to now, nearly a full year has passed without much price speculation, further validating the holders through this time-based surrender.
At LongHash Ventures, we started learning about Jansen and Weekee in March 2022 and confirmed our investment after the rebranding in March 2023. Since then, as the team continues to steadily march towards the north star of hundreds of millions of users collectively owning agents, our conviction has only grown stronger.
How High Can We Fly?
From a market share perspective (based on Coingecko data):
- The market cap of the AI agent vertical, including $VIRTUAL itself, is $9.3 billion at the time of writing.
- The total DeFi market cap is $135 billion, DePIN is $45 billion, Non-Fungible Tokens are $42 billion, and Gaming is $32 billion.
- We believe the AI agent vertical will develop to be on par with, or even surpass, these verticals. As the overall cryptocurrency market cap grows, the rising tide will lift the strongest verticals, especially category leaders like Virtuals Protocol.
From a mindshare perspective, according to Kaito's data: AI has been the #1 narrative over the past 12 months and is still growing, accounting for over 30% in the past 30 days.
The attention on Virtuals Protocol in the AI vertical has risen from the top 20 in the past 12 months to the top 3 in the recent 1 month.
As the AI world continues to accelerate, agents will continuously adopt the latest models. Since the public release of ChatGPT in November 2022, AI has been growing exponentially in all aspects. At times, we feel awe, and at times, we shudder.
