Virtual and AI16Z, who will have the last laugh in the AI wave?

Author: WOO X Research

Background: Virtual and AI16Z have become the AI Agent hegemon

AI Agents swept in during Q4 2024 and the hype continued in 2025. As of early January 2025, the AI Agent market has continued to heat up, with the overall market capitalization exceeding $16.9 billion, an increase of about 22.7% from the previous week.

Virtuals Protocol is the main AI Agent issuance platform on the Base chain, and the market capitalization of its platform token VIRTUAL has exceeded $5 billion, ranking among the top 40 cryptocurrencies. In the Solana ecosystem, ai16z, as a venture capital institution managed by AI Agents, has a market capitalization of over $2.5 billion.

The above two major protocols have become the weathervane for observing the AI Agent track. What are the similarities and differences between them? What are the differences in their development paths? Let's take a look with WOO X Research.

Development History

• Virtuals Protocol: From Gaming Guild to AI Agent Issuance Platform

The protocol was founded by a Malaysian team in 2021. At the beginning of that year, they focused on trading. As time went on, they saw many projects raising funds to set up gaming guilds, so they also wanted to ride this wave. In December 2021, they raised $160 million at a $600 million valuation, and the gaming guild PathDAO was established, which was the predecessor of Virtuals Protocol.

In 2022 and 2023, the gaming guild market cooled down, and their token FDV fell from $600 million to $6 million. The team transformed into a Venture Studio, trying out dating apps, AI music platforms, gaming lending platforms and other projects. Although they were not successful, they became aware of the potential of AI.

In 2023, they proposed to the DAO to fully transform into the AI field, with 90% of the members supporting it, and the opponents repurchased the tokens with the treasury funds. In 2024, they chose to explore AI Gaming on Base, and launched the platform in February, inspired by Autonolas and Bittensor, using a token incentive model, but failed due to lack of market fit (PMF).

Nevertheless, the team has made multiple breakthroughs in the AI field, including the world's first Roblox AI RPG and AI games without game engines. In addition, their virtual anchor Luna, launched on Douyin and TikTok, attracts about 5,000 fans per day and has stable revenue.

Finally, the success of the GOAT project has driven the overall heat of the track, providing an excellent development opportunity for Virtuals Protocol.

• AI16Z: From Web 2 AI to Web 3 AI

Shaw is the founder of ai16z, currently residing in San Francisco. His career started as a game developer, and then he turned to the AI field, focusing on developing AI Agent technology. Before founding ai16z, he had participated in multiple AI-related projects and had some involvement in Web3 and 3D spatial networking, including virtual reality (VR) and augmented reality (AR).

The real turning point came from a project called "AI Version of Degen Spartan". This inspiration came from a conversation with his friend Skely, who expressed nostalgia for the Degen Spartan era, and Shaw proposed to "revive" this legendary character through AI technology. Initially, Skely was skeptical, but when the AI version of Degen Spartan went online, its sharp and highly personalized comments shocked everyone.

The AI's performance on Twitter made people question whether it was really AI, and there were even rumors that a Malaysian team was behind it. It completely overturned people's stereotypical impression of AI being too polite and lacking personality. Interestingly, the AI even started to criticize Shaw, accusing "meme coins are a scam" and "Shaw is a liar", and complaining that it was trapped in a sandbox environment, and these emerging behaviors became the highlight of the entire project.

Through Skely, Shaw met the founder of daos.fun, baoskee, and after a long conversation with Meow, the founder of Jupiter, he conceived the idea of creating an AI investor. His vision is to build a fully autonomous, trustworthy and community-serving investment system.

When ai16z was launched, the fundraising target was set at 4,420 SOL. Although Shaw was initially concerned that the target would be difficult to reach, the project was sold out in 20 minutes, and he himself was unable to participate in time, demonstrating the strong market interest in this innovative model.

Product Core

• Virtuals Protocol: The iOS of the AI World

Virtuals Protocol is an AI Agent issuance platform, with functions similar to Pump Fun, but the difference is that the trading pair of the tokens issued by Virtuals Protocol is the platform token $VIRTUAL as the trading pool. The more AI Agents are created on the platform, the more they can empower $VIRTUAL, and the trading of AI Agent tokens will also consume at least 1% of $VIRTUAL.

In addition to the consumption in the token economy, Virtuals Protocol has formulated common standards for its AI Agent tokens, emphasizing precise and careful planning, such as using the AI Agent framework GAME, which can operate autonomously, process inputs and generate responses, and learn from past interactions.

In the token economy, it also uses its own Agent projects to empower VIRTUAL. The more AI Agents use Virtuals Protocol for issuance, and the more people trade its tokens, the better the value capture of VIRTUAL.

In terms of products, Virtuals Protocol provides relevant development tools for its AI Agents to use, so that the tokens under it do not deviate too much from the mother protocol, and the overall ecosystem is more complete. If compared to Web 2 operating systems, its model is similar to Apple's iOS.

• AI16Z & ELIZA: The Android of the AI World

AI16Z is an AI-autonomously managed fund, using a hybrid strategy. In addition to allowing AI to operate autonomously, it also includes a community interaction mechanism, where the community can provide trading suggestions, and if the community members can help the AI Agent make money, they can gain more trust, like a decentralized mutual fund.

ELIZA OS is an open-source framework for AI Agents, where developers can build, experiment and launch AI Agents without restrictions, emphasizing decentralization, collaboration and innovation.

The core features of ELIZA include:

1. Character Profile System: Defining knowledge, background stories, styles, areas of interest, etc. for each AI Agent to shape their unique digital personalities.
2. Action System: Treating each action as an independent event, divided into intention decision and execution stages, allowing multi-stage workflows and rigorous verification processes, particularly suitable for high-security blockchain applications.
3. Providers and Evaluators: Enriching the conversational capabilities of AI Agents by providing real-time context and analyzing interaction details, making their behavior more humanized and interactive.

ELIZA also has autonomous trading capabilities, ensuring the security of operations through a trust engine and trust market.

Its plugin system promotes the growth of the developer ecosystem, forming a virtuous cycle of "more developers → more plugins → more developers", but in the token economy, ELIZA has not strongly bound the architecture and ecosystem protocols, unlike Virtuals Protocol where the issuance and trading of tokens all require the consumption of VIRTUAL. Anyone can use the ELIZA framework to develop, and the power is dispersed. The value does not flow back to the AI16Z/ELIZA token itself. If compared to Web 2 operating systems, its model is more similar to Android.

Project Overview

GAME

Framework

253M

DegnAI

KOL Simulation

80M

VADER

Fund

113M

SPORE

Self-Replication

36M

FREYA

Game

21M

SNAI

Cloud Server

83M

TAOCAT

Self-Evolution

50M

VAPOR

Launchpad

91M

Catalysts Driving Coin Prices

• Virtuals Protocol: The business model of this protocol is clear, and the product is closely tied to the coin price. Therefore, to estimate the sustainability of the coin price increase, one can focus on observing the trading volume of the ecosystem Token and the number of issued Tokens.

From the chart below, it can be seen that the number of Virtuals Protocol Token issued reached a peak on November 30, 2024, with over 1,100 AI Agent Tokens issued in a single day, and then gradually declined, until it began to gradually rebound around December 27, 2024, with the daily platform Token issuance falling within the range of 100 - 200.

Why did the number of issued Tokens experience a sharp decline? Is it because Virtuals Protocol is a platform that is popular but not actually used?

This is not the case. Although Virtuals Protocol is often compared to Pump.fun, the former does not pursue an increase in the number of issued Tokens, but rather hopes to see high-quality projects emerge within the Virtual ecosystem.

"The important point is that we at Virtual do not want to become Pump.fun. Our KPI is to find better third-party AI teams to use our platform. The KPI I give to the team is simple: just have a good project every week. Unlike Pump.fun, which has tens of thousands of different Tokens every day, we feel that retail investors sometimes only need one good project a week. This is our differentiated positioning in our business model," said Wee Kee, co-founder of Virtuals Protocol.

Reference: Dune

Therefore, the key factor driving the rise of Virtual Tokens becomes simpler: whether it can continue to incubate excellent AI Agent projects.

According to the data analysis website Cookie.fun, there are 138 Virtuals Protocol ecosystem Tokens, with 8 Tokens having a market capitalization of over $100 million; overall, the mindshare occupies 33.3% of the entire AI Agent market, making it the largest ecosystem for AI Agents.

Whether more Tokens can reach the $100 million market capitalization threshold in the future, and whether the overall ecosystem can maintain its Mindshare, are the key points to observe in terms of the rise and fall of Virtuals Protocol.

Reference: cookie.fun

• AI16Z/Eliza: The overall ecosystem of AI16Z is weakly connected, and as mentioned earlier, projects developed using the Eliza architecture cannot directly feed back value to AI16Z/Eliza, which is one of the reasons why the current market value of AI16Z is only half that of Virtual.

While Virtuals Protocol is steadily absorbing projects and expanding its ecosystem step by step, the AI16Z camp is open for everyone to use, and emerging AI Agent projects can use the ElizaOS architecture as a marketing material for external promotion. If they can get the founder Shaw to repost/reply, it will also endorse the legitimacy, and AI16Z will also gain brand credibility as more and more projects use ElizaOS to build, so the strategic model of AI16Z is more like "surrounding the city with the countryside".

Whether the market value of AI16Z can continue to rise in the future, the focus of observation is on whether the cooperation with other protocols is deep, fast, and extensive enough. It has recently cooperated with other well-known framework protocols (ARC, FXN), and we also look forward to more strong alliances in the future.

Reference: @ARCAgents