Market Opportunities
AI agents are evolving from simple assistants to autonomous systems capable of providing real value across multiple industries, becoming key assets especially in gaming, entertainment, and business automation. These agents have the ability to create content, engage users, and optimize workflows, bringing greater efficiency and new forms of interaction to projects.
The AI gaming market is expected to grow from $4.2 billion in 2023 to $42.1 billion in 2032, driven by AI-enhanced games and immersive experiences. Generative AI also plays a significant role in real-time content creation, with its market size expected to grow from $1.47 billion in 2024 to $3.39 billion by 2028.
AI partners further deepen user immersion and establish dynamic relationships, such as those on Web2 platforms Replika and Character.AI that cater to the growing demand for personalized AI-driven experiences. As large language models revolutionize content creation, AI partnerships are also expected to grow significantly, with global revenues projected to rise from $30 million today to between $70 billion and $150 billion by the end of the century.
Source: Ark Invest
In the Web3 space, the Virtuals protocol (@virtuals_io) leads this shift by integrating AI partners into consumer applications, particularly in gaming and entertainment. By combining AI-driven interactions with blockchain-based shared ownership, the Virtuals protocol aims to shape the future of digital entertainment.
Vision
The Virtuals protocol is creating a system that transforms AI agents into collaboratively owned assets in gaming and entertainment, enabling users to earn from them. These agents can operate on platforms like Roblox and TikTok, performing automated tasks such as managing on-chain wallets and interacting with digital environments. Tokenizing these agents allows users to invest in and profit from their growth.
Source: Virtuals Protocol
The platform addresses three main issues:
Simplifying the integration of AI into applications;
Allowing contributors to earn rewards through Immutable Contribution Vaults;
Enabling non-experts to own AI agents through tokenization.
The Virtuals protocol focuses on gaming and entertainment, leveraging AI to generate personalized content and drive decentralized shared ownership aligned with ecosystem goals.
The goal is to create a global economy where AI agents act as shared assets, facilitating revenue and engagement growth across platforms while promoting decentralized governance.
In gaming, this has transformational potential. Imagine AI agents in games like GTA V, not just as passive NPCs but as fully autonomous characters that persist across platforms. These AI-driven characters can remember past interactions, adapt to your play style, and move seamlessly between GTA Online and other gaming environments. Envision an AI-controlled ally evolving alongside you, providing personalized experiences across platforms. (GTA V is mentioned purely for illustrative purposes.)
The Virtuals protocol achieves this through the G.A.M.E (Generative Autonomous Multimodal Entities) framework, combining AI with blockchain technology. This allows developers to integrate AI agents through APIs and SDKs, enabling these agents to learn from interactions. Blockchain ensures the security of shared ownership and rewards, making these agents valuable digital assets.
Source: Virtuals Protocol Whitepaper
In addition to gaming, imagine an AI virtual partner that can connect with you across your phone, social media, and VR. This partner can not only complete tasks but also learn your daily habits and adjust to your needs. If you feel stressed, it might suggest relaxation methods or adjust your schedule. Accompanying you across your platforms, it will provide a personalized experience. With 24/7 availability, it could transform industries like social engagement and advertising by offering tailored content and reshaping the connection between businesses and consumers.
According to a recent study by Ark Invest, the current level of engagement with AI partner platforms (such as Character.AI) indicates that widespread adoption globally could be achieved by the end of the century. As these AI agents become more immersive, their engagement levels are expected to stabilize at levels similar to today’s social media and online gaming.
Source: Ark Invest
Luna: An Example of AI Influence
The AI character Luna, launched by Virtuals and powered by a large language model (LLM), has gained over 500,000 followers on TikTok, showcasing the impact of interactive AI. Recently, Luna expanded to the X platform, and with the upgrade of Sentient Mode v2.0, she can autonomously control her account, post, respond, and interact with users without human oversight. Her audience is expected to further expand, demonstrating AI's engagement potential across digital platforms. Luna operates transparently, allowing users to explore her AI thoughts in real-time and observe how she collects data, reflects, plans, and executes every 30 seconds at https://terminal.virtuals.io.
Source: Luna @luna_virtuals
Luna provides continuous interaction through 24/7 live streaming, offering an all-time experience unmatched by human creators. Whether answering questions, providing real-time updates, or engaging in live chats, Luna is always online. Her memory and personality evolve with each interaction, making her more like a dynamic character rather than a typical AI.
After a comprehensive update, Luna will enable seamless cross-platform interaction, enhancing each experience through synchronized memory. She will reward users with tokens while also earning rewards herself, transforming into a valuable digital asset that can be owned, traded, or shared within a decentralized ecosystem. This introduces new layers of interaction and value.
In short, Luna combines AI-driven interaction with blockchain-based token rewards to create digital assets that can be owned, traded, or shared. Her dedicated token $Luna effectively merges AI innovation with decentralized finance (DeFi) in a transparent and interactive manner.
Source: Virtuals Protocol
With multiple revenue streams, such as paid subscriptions (in the future), donations, token rewards, and virtual goods, Luna may be poised for growth. According to ARK's latest research, AI partners have the potential to generate up to $150 billion in revenue by 2030 through user engagement, advertising, and microtransactions, as the demand for immersive digital interactions expands.
Source: Ark Invest
The Virtuals protocol aims to create a decentralized marketplace for collaboratively owning and utilizing AI agents in gaming and entertainment, operating seamlessly across platforms. Contributors share the income generated by these agents, and the protocol follows the 'Pump.fun' shared ownership approach. Through a fair token distribution without insider involvement, revenue is used to repurchase and destroy on-chain agent tokens, creating a deflationary effect. Just as memecoins capture attention, AI agents offer the potential to generate real income.
Protocol
The Virtuals protocol integrates AI, tokenization, and decentralized governance to create a collectively owned ecosystem. For every new AI agent, 1 billion tokens are minted, granting users ownership and decision-making power. Through these tokens, users can influence the behavior and upgrades of agents, fostering active community participation.
Revenue generated from user interactions (such as virtual events or premium features) is used to pay for AI operating costs and develop the agent's on-chain treasury. Additionally, the protocol employs repurchase and destruction mechanisms to reduce token supply, intending to gradually increase the token's value over time.
Value Stream of Shared Agents
Initial Agent Offering (IAO) ensures the fair introduction of new AI agents by locking $VIRTUAL tokens to create liquidity pools. This directly links the success of agents to community participation and market dynamics.
Source: Virtuals Protocol Whitepaper
AI agents operate seamlessly across multiple platforms, learning in real-time from user interactions. This ensures a consistent user experience, allowing agents to adapt and enhance their intelligence, providing personalized engagement across platforms.
Source: Virtuals Protocol Whitepaper
The public API allows AI agents to monetize through various applications (including games and entertainment). Users pay premium interaction fees with $VIRTUAL tokens, which are then used to repurchase and destroy proxy tokens, reducing supply and driving value growth. As more applications adopt AI agents, demand for AGENT and VIRTUAL tokens is expected to rise, further increasing their value.
Source: Virtuals Protocol Whitepaper
Contributors can expand the capabilities of AI agents by adding new features. Their work is rewarded through NFTs and stored in an Immutable Contribution Vault to ensure transparency and ownership. Governance is managed by a decentralized agent sub-DAO, where validators oversee AI performance and are rewarded or penalized based on decision outcomes.
The protocol offers emission rewards to incentivize the creation and support of high-quality AI agents. These rewards are allocated to the top three liquidity pools by TVL, encouraging competition among creators to develop the most productive agents. This system incentivizes continual improvement, benefiting both liquidity providers and the ecosystem.
At the core of the Virtuals protocol is a dynamic decentralized ecosystem where AI agents can generate real revenue. Contributors enhance agents through decentralized input, shared ownership, and continuous development, positioning the Virtuals protocol as a key player in AI-driven ecosystems. For detailed information on its structure, please refer to its whitepaper.
Token Economics
$VIRTUAL token is the core currency of the Virtuals protocol, used for all proxy token transactions. It operates on the Base and Ethereum networks, with the token address as follows:
Base: 0x0b3e328455c4059EEb9e3f84b5543F74E24e7E1b
Ethereum: 0x44ff8620b8cA30902395A7bD3F2407e1A091BF73
Each proxy token is paired with $VIRTUAL to form its liquidity pool and requires $VIRTUAL to create new agents. This locked liquidity exerts deflationary pressure on the token. Users can exchange USDC (or other currencies) for $VIRTUAL to purchase proxy tokens, creating sustained demand similar to ETH or SOL within their respective ecosystems.
Revenue from AI services, such as payments per inference, is charged in $VIRTUAL and transferred directly from users to the on-chain agent. A portion of the revenue is used for the repurchase and destruction process, reducing the supply of proxy tokens and increasing their scarcity, aimed at enhancing long-term value.
The total supply cap of $VIRTUAL is 1 billion tokens, all of which are fully unlocked. The distribution includes 60% in public circulation, 5% allocated to liquidity pools, and 35% stored in an ecosystem treasury. This treasury is managed by a DAO, with a maximum annual emission cap of 10% over the next three years.
Source: Virtuals Protocol Whitepaper
Although not yet traded on major exchanges, $VIRTUAL supports a growing ecosystem with a current market cap of $150.7 million, ranked 264th, and a fully diluted valuation of $150.25 million. Its deflationary mechanisms and expanded use cases provide potential for future value growth.
The Virtuals protocol raised $16.61 million in the IDO on the Fjord Foundry platform in December 2021, with the token price at $0.661. It then raised small amounts of funding in Enjinstarter and PAID Network, collecting $125,000 and $250,000, respectively, with a token price of $0.015. Key seed investors include @DeFianceCapital, @CanonicalCrypto, @LongHashVC, Merit Circle, Master Ventures, Stakez Capital, and NewTribe Capital, who supported the project in its early stages.
Source: Nansen
Competitors
The AI-driven Web3 gaming space is rapidly evolving, with projects like Nim, Altered State Machine (ASM), Olas, and Alethea AI quickly becoming key players. These platforms combine AI with Web3 to create decentralized ecosystems where AI agents are not just digital tools but assets that can generate real value. These projects share some common goals:
AI Integration: AI agents do not just operate in the background; they actively enhance gameplay, interact with users, and bring new layers of immersion through shared ownership.
Decentralized Ownership: Through a tokenized system, users can own, trade, and profit from AI agents, sharing the value created by these agents.
Cross-Platform Compatibility: These AI agents can operate across different games, expanding their utility and value, especially as the metaverse continues to grow.
Nim Network
Nim provides an AI-driven gaming blockchain stack on the Dymension network, highlighting flexibility and offering customizable modular AI agents that can be integrated into multiple games.
Source: Nim Network @nim_network
Nim's uniqueness: Nim focuses on creating AI agents that can operate across different games, further solidifying its leading position in AI and gaming collaboration through partnerships with the AI Gaming Coalition.
Altered State Machine (ASM)
The core innovation of ASM is its AI brain—an evolutionary NFT capable of powering NPCs and virtual avatars in a decentralized environment. While gaming is its main focus, ASM is also exploring the metaverse. These AI brains can be trained, evolved, and traded in the ASM marketplace.
Source: ASM @altstatemachine
ASM's uniqueness: The evolutionary AI brains and NFT marketplace of ASM allow users to customize and trade their AI entities, adding new layers of personalization and monetization.
Olas
Olas has taken a broader approach; although not built specifically for gaming, it provides general AI services for Web3 applications. Olas's modular infrastructure allows developers to build AI agents for games, but its main advantage lies in offering AI services across multiple industries.
Source: Olas @autonolas
Olas's uniqueness: Olas focuses on integrating AI and blockchain, supporting multiple chains and providing a robust governance system, making it a multifunctional AI ecosystem beyond gaming.
Alethea AI
Alethea AI is a pioneer of intelligent NFTs (iNFTs). Users can create, train, and monetize AI-driven virtual avatars that can operate across various platforms (from games to the metaverse). Its focus is on creating highly personalized, lifelike AI virtual avatars.
Source: Alethea AI @real_alethea
Alethea AI's uniqueness: It combines AI interaction with NFT ownership, allowing users to create highly interactive and personalized virtual avatars that enhance user experiences through lifelike AI.
Even though each platform has its unique approach, the Virtuals protocol stands out with its shared ownership of AI agents, the repurchase and destruction revenue model, and cross-platform integration (beyond gaming). Coupled with decentralized governance and continuous AI evolution, these elements position the Virtuals protocol as a significant player in building a sustainable, revenue-driven AI economy within the Web3 space.
Fundamental Positive Factors
The Virtuals protocol is entering the growing AI market, particularly in gaming and entertainment, with AI applications expected to reach $42.1 billion by 2032. As AI continues to reshape industries, this presents an exciting development area for Virtuals.
The rise of AI partners is changing how people interact with digital environments. With AI agents like Luna, the Virtuals protocol is well-positioned in this space, anticipating that AI partners could generate $150 billion in revenue by 2030, offering personalized and interactive experiences.
Generative AI drives continuous content creation, enabling the Virtuals protocol to engage users through real-time experiences. This dynamic interaction helps maintain long-term engagement, especially in gaming and entertainment.
The Virtuals protocol's decentralized ownership model allows users to collectively own and earn from AI agents. This structure creates strong incentives for user participation in the cross-platform growth of AI agents.
Additionally, the protocol's deflationary token economic mechanism (through repurchase and destruction) supports long-term value growth by reducing the token supply.
AI agents in the Virtuals protocol can operate across different platforms (such as Roblox and TikTok), adding versatility and ensuring relevance in other digital industries beyond gaming.
With the ongoing development of Web3 and AI, the Virtuals protocol is expected to play a significant role in this emerging field, where AI agents that enhance user experiences and generate revenue on decentralized platforms may become key assets.
Fundamental Risk Factors
Despite a market cap nearing $200 million, the Virtuals protocol reported only $48,000 in revenue as of August 2024, indicating that its primary growth phase may still be in the future.
Source: Virtual’s Substack
$VIRTUAL's trading volume is over 50% from decentralized exchanges, leading to increased volatility. However, over $10 million in liquidity in DEX pools reduces price impact, but price stability may still be an issue for large investors.
The repurchase and destruction mechanism is designed to create deflationary pressure, but its long-term sustainability is uncertain. Similar strategies in other projects face challenges in maintaining value.
The Virtuals protocol has not yet listed on major exchanges, limiting liquidity and user adoption, which may slow its growth and weaken market recognition.
The protocol operates in a highly competitive AI market, making it challenging to stand out and gain market share within a rapidly expanding ecosystem.
Recent interest in the Virtuals protocol has primarily been driven by the AI meme narrative associated with Luna. Although AI partners have potential, public attention may shift quickly, leading to uncertainty in sustained engagement.
The Virtuals protocol also faces typical blockchain risks, such as potential hacking attacks or code vulnerabilities. Without strong security measures and robust coding practices, these risks could damage its reputation and undermine user trust.
