Author: Greythorn Asset Management, Translation: Golden Finance xiaozou
1. Market opportunities
AI agents are evolving from simple assistant functions to autonomous systems that provide real value to various industries. They are becoming key revenue-generating assets, especially in areas such as gaming, entertainment, and business automation. AI agents can create content, engage users, and optimize workflows, providing enterprises with greater efficiency and new interaction methods through tool integration.
The AI gaming market is expected to grow from $4.2 billion in 2023 to $42.1 billion in 2032, thanks to AI-enhanced gameplay and immersive experiences. Generative AI, which is also transforming the real-time content creation space, is expected to grow from $1.47 billion in 2024 to $3.39 billion in 2028.
AI products are deepening users’ immersive experiences and building dynamic relationships, as demonstrated by Web2 platforms such as Replika and Character.AI, catering to the growing demand for personalized AI experiences. As large language models revolutionize content creation, the use of artificial intelligence will grow significantly, with global revenue in the field expected to grow from $30 million today to $70 billion to $150 billion by the end of this decade.
In the Web3 space, Virtuals Protocol is leading this shift by integrating AI into consumer applications, particularly games and entertainment. By combining AI-driven interactions with blockchain-based co-ownership, Virtuals Protocol aims to shape the future of digital entertainment.
2. Vision
Virtuals Protocol is creating a system that turns AI agents into shared assets within games and entertainment, allowing users to earn income from them. These agents can work across platforms such as Roblox and TikTok, autonomously performing tasks such as managing on-chain wallets and interacting with digital environments. Tokenization of these agents will allow users to invest and profit from their growth.
The platform solves three main problems:
Simplifies the integration of AI into applications.
Enable contributors to earn income through Immutable Contribution Vaults.
Allowing non-experts to own AI agents through tokenization.
Focused on gaming and entertainment, Virtuals Protocol uses artificial intelligence to generate personalized content and facilitates decentralized co-ownership, aligning individual incentives with the overall goals of the ecosystem.
The goal: to create a global economy in which AI agents act as common assets, increasing revenue and engagement across platforms while promoting decentralized governance.
In the gaming world, this has transformative potential. Think of AI agents in games like GTA V—not just passive NPCs, but fully autonomous characters across platforms. These AI-driven characters can remember previous interactions, adapt to your play style, and move seamlessly between environments like GTA Online or other games. Imagine a scene where an AI-controlled ally evolves with you, providing a personalized experience across different platforms. (I’m just using GTA V as an example here.)
Virtuals Protocol achieves this through the G.A.M.E (Generative Autonomous Multimodal Entity) framework, combining artificial intelligence with blockchain technology. This allows developers to integrate AI agents through APIs and SDKs, enabling agents to learn from interactions. Blockchain ensures secure co-ownership and rewards, turning these agents into valuable digital assets.
Beyond games, imagine an AI virtual companion that connects with you through your phone, social media, and VR. This companion not only handles tasks, but also learns your routine and adapts to your needs. If you’re stressed, it might suggest you relax or adjust your schedule. It can follow you across platforms to provide a personalized experience. Available 24/7, it has the potential to transform industries like social engagement and advertising by providing tailored content and reshaping how businesses connect with consumers.
A recent study by Ark Invest shows that current engagement levels with AI companion platforms such as Character.AI suggest that mass adoption could occur by the end of this decade. As these AI agents become more immersive, user engagement is expected to stabilize at levels similar to today’s social media and online gaming.
3. Luna: An example of AI’s impact
Luna, an AI character developed by Virtuals and powered by the Large Language Model (LLM), has gained over 500,000 followers on TikTok, demonstrating the growing influence of interactive AI. Luna has recently expanded to platforms like X, where she can autonomously control accounts thanks to her Sentient Mode v2.0 upgrade - posting, replying and interacting with users without human supervision. She is ready to reach a wider audience, demonstrating the potential of AI to drive engagement on digital platforms. Luna operates with full transparency, allowing users to view her AI mind in real time and observe how she collects data, introspects, plans and executes in 30-second cycles through terminal.virtuals.io.
Luna is live 24/7, providing constant interaction and an always-on experience that human creators can't match. Whether answering questions, providing real-time information updates, or participating in real-time chats, Luna is always there. Her memory and personality evolve with each interaction, making her feel more like a dynamic character than a typical AI.
Once fully updated, Luna will interact seamlessly across the platform, syncing her memories to enhance every experience. She will reward users with tokens while earning rewards herself, transforming into a valuable, high-value asset that can be owned, traded, or shared across a decentralized ecosystem. This introduces a new level of interactivity and value.
Essentially, Luna combines AI-driven engagement with blockchain-based token rewards to create digital assets that can be owned, traded, or shared. Through its own token, Luna, it effectively merges AI innovation with decentralized finance (DeFi) in a transparent and interactive way.
Luna is poised to grow through multiple revenue streams including paid subscriptions (eventually), donations, token rewards, and virtual goods. According to ARK’s latest research, as demand for immersive digital interactions expands, the AI companion category could generate up to $150 billion in revenue by 2030, driven by user engagement, advertising, and microtransactions.
Virtuals Protocol aims to create a decentralized marketplace where AI agents are co-owned, used in games and entertainment, and work seamlessly across platforms. Contributors share the revenue generated by these agents, and the protocol follows a "Pump.fun" approach to co-ownership. This is achieved through a fair token issuance, with no insider participation, while revenue is used to buy back and burn on-chain agent tokens, resulting in a tightening effect. Just like meme coins attract people's attention, AI agents offer a lot of revenue potential.
4、Virtual Protocol
Virtuals Protocl integrates AI, tokenization, and decentralized governance to create a co-ownership ecosystem. For every new AI agent, 1 billion tokens are minted, giving users ownership and decision-making power. These tokens enable users to influence key factors, such as the behavior and upgrades of agents, thereby promoting active community participation.
Revenue from user interactions (such as virtual events or premium features) is used to pay for AI operating costs and enhance the agent's on-chain treasury. In addition, a buyback and burn mechanism is used to reduce the token supply, with the goal of gradually increasing the value of the token over time.
The Initial Agent Offering (IAO) creates a liquidity pool by locking up VIRTUAL tokens, ensuring fair introduction of new AI agents. This directly ties agent success to community participation and market dynamics.
AI agents operate seamlessly across multiple platforms, continually learning from user interactions in real time. This allows for a consistent user experience, and agents can adapt and improve their intelligence to provide personalized engagement across platforms.
Public APIs enable AI agents to generate revenue through different applications, including games and entertainment. Users use VIRTUAL tokens for advanced interactions, which are then used to buy back and burn agent tokens, thereby reducing supply and driving value growth. As more applications adopt AI agents, demand for AGENT and VIRTUAL tokens is expected to rise, further driving up their value.
Contributors extend the AI agent by adding new features. The rewards for their efforts are NFTs stored in an immutable contribution treasury, ensuring transparency and ownership. Governance is managed through decentralized proxy child DAOs, where validators monitor the performance of the AI and are rewarded or punished based on their decisions.
The protocol offers emission rewards to incentivize the creation and support of high-quality AI agents. These rewards are distributed among the three best-performing liquidity pools, encouraging competition among creators and promoting the development of the most productive agents. The system incentivizes continuous improvement, benefits liquidity providers, and contributes to the development of the ecosystem.
At its core, Virtuals Protocol is about building a dynamic decentralized ecosystem that allows AI agents to generate real income. Contributors enhance agents through decentralized input, shared ownership, and ongoing development, positioning Virtuals Protocol as an important player in the AI ecosystem.
5. Token Economics
The VIRTUAL token is the core of Virtuals Protocol and is the base currency for all proxy token transactions. It runs on the Base and Ethereum networks, and the token address is as follows:
Base：0x0b3e328455c4059eeb9e3f84b5543f74e24e7e1b
Ethereum: 0x44ff8620b8ca30902395a7bd3f2407e1a091bf73
Each proxy token is paired with VIRTUAL in its liquidity pool, and acquiring VIRTUAL is necessary to create new proxies. This locked liquidity creates deflationary pressure on the token. Users can use USDC (or other currencies) to exchange VIRTUAL to purchase proxy tokens, creating a constant demand similar to ETH or SOL in their respective ecosystems.
Fees for AI services (such as inference) are collected in the form of VIRTUAL and transferred directly from users to on-chain agents. Part of this revenue is used for the buyback and burn process to reduce the supply of agent tokens and increase their scarcity to increase their long-term value.
The total supply of VIRTUAL is capped at 1 billion tokens, and all tokens are fully unlocked. The specific distribution is 60% allocated to public circulation, 5% to the liquidity pool, and 35% held by the ecological treasury. The treasury is managed by the DAO, and the annual emission cap for the next three years is 10%.
While not yet traded on a tier-one exchange, VIRTUAL supports a growing ecosystem and currently has a market cap of $157 million, ranking #264, with a fully diluted value of $150.25 million. Its deflationary mechanism and expanded use cases will fuel its potential value growth.
In December 2021, Virtuals Protocol raised $16.61 million during its IDO on the Fjord Foundry platform at a token price of $0.661. Additional small rounds were conducted on Enjinstarter and PAID Network, raising $125,000 and $250,000 respectively at a token price of $0.015. Major seed investors include DeFiance Capital, Canonical Crypto, LongHash Ventures, Merit Circle, Master Ventures, Stakez Capital, and NewTribe Capital, which provided support in the early stages of the project.
6. Competitors
The AI Web3 gaming space is growing rapidly, with projects such as Nim, Altered State Machine (ASM), Olas, and Alethea AI quickly becoming major players. These platforms are combining AI with Web3 to create decentralized ecosystems where AI agents are more than just digital tools — they are assets that create real value. These projects share several common goals:
AI Integration: AI agents don’t just run in the background. They actively enhance gameplay, interact with users, and enable new immersive experiences through shared ownership.
Decentralized ownership: Through a tokenized system, users can own, trade, and profit from AI agents, sharing in the value created by these agents.
Cross-platform compatibility: These AI agents can run in different games, expanding their utility and value, especially as virtual worlds continue to evolve.
Now let’s take a deeper look at how these platforms achieve these goals and what makes them stand out.
（1）Nim Network
Nim provides a blockchain stack for AI-driven games on the Dymension network. It's all about flexibility, modularity, and customizable AI agents that can be integrated into multiple games.
Nim is unique in that it focuses on creating AI agents that can be used in different games. Its partnership with the AI Coalition further solidifies its position as a leader in the collaboration between AI and games.
（2）Altered State Machine (ASM)
ASM's core innovation is its AI brains - evolving NFTs that power NPCs and characters in a decentralized environment. While gaming is its primary focus, ASM is also exploring virtual worlds. These AI brains can be trained and evolved, and traded on ASM's marketplace.
What makes ASM unique is that: ASM’s evolving AI brain and NFT marketplace give users the opportunity to customize and trade their AI entities, adding a whole new layer of personalization and monetization.
（3）Eggs
Olas takes a broader approach. While it is not developed specifically for games, it provides general AI services for Web3 applications. Olas' modular infrastructure allows developers to build AI agents for games, but its main advantage is providing AI services across multiple fields.
What makes Olas unique is that Olas focuses on the integration of AI and blockchain, supports multiple chains and provides a strong governance system, making it a multi-functional AI ecosystem that goes beyond gaming.
（4）Alethea AI
Alethea AI is a pioneer in intelligent NFTs (iNFTs). Users can create, train, and monetize AI characters across different platforms, from games to virtual worlds. The focus here is on creating highly personalized, lifelike AI characters.
What makes Alethea AI unique is that it combines AI interaction and NFT ownership, allowing users to create interactive, personalized characters, enhancing the user experience through lifelike AI and making it stand out.
……………………………………
While each platform has its own unique approach, Virtuals Protocol is unique in its AI agent co-ownership, buyback and burn revenue model, and cross-platform integration beyond gaming. As decentralized governance and artificial intelligence continue to advance, these elements position Virtuals Protocol as an important player in building a revenue-driven sustainable AI economy in the Web3 world.
7. Bullish fundamentals
Virtuals Protocol is tapping into the growing AI market, especially in gaming and entertainment, where AI applications are expected to be worth $42 billion by 2032. This will be an interesting area to develop as AI continues to reshape industries.
The rise of AI companion products is changing the way people interact with digital environments. Through AI agents like Luna, Virtuals Protocol is targeting this space, which is expected to generate $150 billion in revenue by 2030 through personalized interactive experiences.
Generative AI supports continuous content creation, allowing Virtuals Protocol to keep users engaged in real-time experiences. This dynamic interaction helps maintain long-term user stickiness, especially in the gaming and entertainment sectors.
What makes Virtuals Protocol stand out is its decentralized ownership model, which allows users to jointly own and earn revenue from artificial intelligence agents. This structure creates a strong incentive for users to participate in the development of cross-platform AI agents.
Additionally, the protocol’s deflationary token economics, with its token buyback and burn mechanism, supports the long-term value of the token by reducing the token supply as demand grows.
Virtuals Protocol’s AI agents can run across different platforms, such as Roblox and TikTok, and this flexibility enhances versatility, ensuring relevance to other digital industries beyond gaming.
As Web3 and AI continue to evolve, Virtuals Protocol will play a key role in this emerging space where AI agents could become a vital asset in enhancing user experience and generating revenue across decentralized platforms.
At current valuations, with a market cap and fully diluted valuation approaching $200 million with all tokens in circulation, Virtuals could present an attractive investment opportunity for investors with a high risk tolerance. This is especially true given the potential of the industry that Virtuals is tapping into.
8. Bearish fundamentals
Despite a market cap of nearly $200 million, Virtuals Protocol has earned just $48,000 as of August 2024, suggesting its main growth phase may be yet to come.
More than 50% of VIRTUAL’s trading volume comes from decentralized exchanges (DEX), which brings volatility. However, with over $10 million in liquidity in DEX pools, the price impact remains minimal, although price stability may still be a significant concern for large investors.
While the token buyback and burn mechanism is designed to create deflationary pressure, its long-term sustainability is uncertain. Similar strategies in other projects have faced challenges in maintaining value over time.
Virtuals Protocol is not yet listed on a tier-one exchange, which limits liquidity and user adoption, potentially slowing its growth and hindering broader market acceptance.
The protocol operates in a highly competitive AI market, making it difficult to stand out and capture market share in a rapidly expanding ecosystem.
Much of the recent interest in Virtuals Protocol has been driven by Luna, an AI companion product tied to the AI meme narrative. While there is potential in the AI companion category, public attention can shift quickly, making continued engagement uncertain.
Virtuals Protocol also faces typical blockchain risks, such as hacker attacks or code vulnerabilities. Without strong security measures and solid coding practices, these risks could damage its reputation and erode user trust.
