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

Background: Virtual and AI16Z have become the AI Agent hegemon

The AI Agent swept in during Q4 2024, and the heat did not subside in 2025. As of early January 2025, the AI Agent market 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 primary 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, and 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, but as time passed, they saw many projects raising funds to establish gaming guilds, so they also wanted to ride this wave. In December 2021, they raised $160 million at a valuation of $600 million, 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 various projects such as dating apps, AI music platforms, and gaming lending platforms. Although they were not successful, they became aware of the potential of AI.

In 2023, they proposed to the DAO to fully transition to the AI field, and 90% of the members supported it, while the opponents bought back the tokens with 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 it was not successful due to lack of market fit (PMF).

Nevertheless, the team has made several 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 heat of the entire 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 he later 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 networks, including virtual reality (VR) and augmented reality (AR).

The real turning point came from a project called the "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" the legendary character through AI technology. Initially, Skely was skeptical, but when the AI version of Degen Spartan went live, its sharp and highly personalized comments shocked everyone.

The AI's performance on Twitter made people question whether it was truly AI, and there were even rumors that a Malaysian team was behind it. It completely overturned the stereotypical impression of AI being overly 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 about being trapped in a sandbox environment, and these emerging behaviors became the highlights 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, while learning from past interactions.

  In the token economy, Virtuals Protocol 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 its management 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 that uses 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 will gain more trust, like a decentralized mutual fund.

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

The core features of ELIZA include:

1. Character Profile System: Defining knowledge, background stories, styles, and areas of interest for each AI Agent to create 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 its architecture and ecosystem protocols, unlike Virtuals Protocol, where the consumption of VIRTUAL is required for issuing tokens and trading. Anyone can use the Eliza framework to develop, and the power is dispersed. The value does not necessarily flow back to the AI16Z/Eliza token itself, and if compared to Web 2 operating systems, its model is more similar to Android.

Overview of Conceptual Projects

Catalysts Driving Token Prices

• Virtuals Protocol: The business model of this protocol is clear, and the product is closely tied to the token price. To estimate the sustainability of the token price increase, you can focus on observing the trading volume of the ecosystem tokens and the number of issued tokens.

  From the chart, we can see that the number of AI Agent Tokens issued by the Virtuals Protocol reached a peak on November 30, 2024, with over 1,100 tokens issued in a single day, and then gradually declined, until it began to gradually rebound around December 27, 2024, with the platform issuing approximately 100-200 tokens per day.

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

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

  "The important point is that we at Virtual don't want to become Pump.fun. Our KPI is to find better third-party AI teams to use our platform. The KPI I've given 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 the Virtuals Protocol.

  Reference: Dune

  

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

  According to the data analysis website Cookie.fun, there are 138 Bit tokens in the Virtuals Protocol ecosystem, with 8 Bit tokens having a market cap 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 Bit tokens can reach the $100 million market cap threshold, and whether the overall ecosystem can maintain its mindshare, are the key points to observe in terms of the rise and fall of the Virtuals Protocol.

  Reference: cookie.fun

  

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

If we say that the Virtuals Protocol is a methodical absorber of projects, step by step expanding the ecosystem, then the AI16Z camp is open for everyone to use, and emerging AI Agent projects can use the Eliza OS architecture as a marketing material for external promotion. If they can get the founder Shaw to retweet/reply, it will also endorse the legitimacy, and AI16Z will also gain brand credibility as more and more projects use Eliza OS to build, AI16Z's strategic model is more like "surrounding the city with the countryside".

Whether the future market cap of AI16Z can continue to rise, the focus of observation is whether the cooperation with other protocols is deep enough, fast enough, 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