Authors: Teng Yan & ChappieOnChain, Chain of Thought; Compilation: Golden Finance Ziaozou
1. Summary of this article:
● The competition for the AI Agent release platform has begun, with everyone wanting to become the 'OpenSea' for Agents. Virtuals Protocol is a strong contender.
● Virtuals Protocol provides a framework for creating, owning, and scaling tokenized AI agents.
● We delved into the smart contracts of Virtuals and discovered a complex system of permissionless contribution and value creation.
● The AgentFactoryV3 smart contract is the core of this framework. Under this framework, token holders benefit from the income generated by AI agents while also incentivizing meaningful contributions to the ecosystem.
● Every AI agent on Virtuals is dynamic, capable of evolving its voice, visuals, data, and models through DAO.
● For developers building AI agents, choosing the right platform is crucial—Base positions itself as the preferred hub for consumer-oriented AI agents.
Virtuals Protocol has recently become a hot topic in the field. It started as a modest gaming guild (Path DAO) and has now evolved into a platform for creating and managing AI agents.
The timing couldn't be better. Consumers are obsessed with platforms like Truth Terminal and GOAT, and Virtuals is perfectly positioned to seize this trend.
At the peak of the AI meme coin frenzy, VIRTUAL and its sub-product LUNA were at the center of the excitement.
However, let's pause for a moment. While speculation is fun, it raises a deeper question hidden behind all these memes and bold dreams: What does it really mean to 'own' an AI agent?
A more accurate statement would be: when you purchase a token of an AI agent, what do you really own?
Is there a real value creation mechanism that differentiates them from meme coins?
This is the problem we set out to solve. So we delved into the smart contracts driving the Virtuals protocol.
We want to understand the true meaning of owning something that can influence the success of AI agents, how the protocol enables participants to actively engage in shaping their development, and whether this tokenized AI agent economy is genuine.
We found the following situations.
2. AI is usually a multi-billion dollar business
Back in 2014, my (ChappieOnChain) mission was to find product-market fit for chat applications.
One unexpected and delightful discovery we made: even the simplest chatbots (not much more advanced than their predecessor ELIZA) can attract a small group of users.
These rule-based robots keep conversations going, driving astonishing engagement.
Through in-depth research of the market, I found that the products with the highest product-market fit are those developed from 'IF this, THEN that' chatbot programs, called Talking Tom.
Talking Tom is not just a cute cartoon cat. Tom is a master of interactive design. Through clever scripts and rule-based behaviors, Tom has captivated children around the world, generating substantial revenue through in-app purchases: gifts, animations, outfits, and everything else you can think of.
However, despite its massive success, people like us cannot benefit from this digital phenomenon. Talking Tom belongs entirely to its creators, while the rest of us can only watch (or buy another set of digital outfits).
Fast forward ten years, and the game has changed completely.
Today, the rise of large language models (LLMs) breaks the limitations of scripted bots, creating context-aware dynamic interactions that attract a broader audience.
If we combine this with the tokenization of blockchain, suddenly, the impossible becomes possible: ownership, contribution, and investment in AI agents as digital assets.
3. The Agent market competition has begun
Now, we are witnessing the emergence of a brand new competition—reminiscent of the NFT craze.
Everyone is racing to become the OpenSea of the 2025 AI agent craze.
At the peak of the NFT craze in January 2022, OpenSea raised $300 million at a valuation of up to $13 billion. Just six months earlier, it had raised $100 million at a $1.5 billion valuation. In six months, the valuation grew eightfold.
It's no surprise that a similar gold rush is happening in the AI agent space, with players like MyShell, Virtuals Protocol, and Creator.bid vying for first place. New players like Vvaidotfun emerge every day.
What we want to do is very similar: create and tokenize AI agents, with entertainment as the primary use case.
Virtuals Protocol caught our attention because:
● Transparency: Their smart contracts are public, in the spirit of Web3. This allows anyone to delve into their codebase. So, we did the same.
● Traction: They have deployed a live AI agent (LUNA) that has generated a buzz. There is also an on-chain venture capital agent (SEKOIA), supported by investments from Canonical Ventures' Anand Iyer.
● Market leader: As of this writing, the market cap of Virtuals' VIRTUAL token has surpassed $500 million, leading the pack.
4. Introduction to Virtuals Protocol
At the core of Virtuals Protocol is a framework that supports the creation, ownership, and growth of tokenized AI agents. This includes:
● Creation: Design new tokenized AI agents based on 'fair' standards.
● Profitability: Token holders can benefit from the revenue generated by AI agents—such as in-app purchases, subscriptions, or other monetization streams.
● Contribution: The system encourages permissionless contributions, allowing anyone to enhance the performance of AI agents and share in their success.
● Distribution: Expanding the reach of agents through social media channels, turning them into viral digital assets.
Let's explore each part of this process and the underlying smart contracts.
5. Create a brand new AI agent
Creating AI agents in Virtuals is very simple.
The platform has a launchpad called fun.virtuals, clearly inspired by pump.fun. You just need to fill in some basic information to define the agent's purpose and personality.
But simple does not mean chaotic. If anyone could instantly launch an AI agent, the platform would be overwhelmed, and reasoning fees would spiral out of control. Virtuals has implemented a very good mechanism to maintain high quality while allowing open access.
(1) The journey of transformation
After creating an agent, a bonding curve will be initiated. This curve defines the token economics of the agent, starting with a total supply of 1 billion FERC20 tokens (short for Fun ERC20).
Before agents can interact with the world, they must reach a market cap of $4,200, and the bonding curve only accepts VIRTUAL tokens as payment tokens. At this stage, buyers are not purchasing the final AI agent token, but rather FERC20 tokens.
These can be seen as placeholders or stakes for the potential of agents. Once the target of $4,200 is reached, the agent will be activated, but only within the Virtuals Forum.
A true transformation occurs when the AI agent reaches a market cap of $420,000, which Virtuals refers to as 'red-pilled.' At this point, the agent undergoes a series of critical changes:
● AI agents can interact and transfer on X.
● Like a butterfly breaking out of its cocoon, it has transformed:
- The total supply of AI agent tokens is the same as FERC20 (1 billion)
- Create a UniswapV2 liquidity pool using AI agent tokens + VIRTUAL trading pairs.
- The AI agent tokens + VIRTUAL tokens reserved in the bonding curve are sent to the UniswapV2 pool.
- LP tokens deposited with agent tokens + VIRTUAL have a 10-year lockup period.
Finally, FERC20 token holders can exchange their tokens for AI agent tokens using the 'unwrap feature.' This feature utilizes a newly created Uniswap pool, and the process burns FERC20 tokens.
The entire system strikes a delicate balance between accessibility and quality control. By linking creation to milestones and market caps, Virtuals ensures that only truly attractive agents can enter the broader ecosystem.
(2) Roles of Virtuals
However, Virtuals is not just a new agent token paired with the Uniswap V2 pool.
The real innovation lies in the system enabling token holders to benefit from the income generated by AI agents while incentivizing them to make meaningful contributions to the ecosystem.
At the core of this framework is the AgentFactoryV3 smart contract, which creates several key components: Agent Token, NFT, veToken, DAO, Token-Bound Account (TBA).
● Agent Token
Agent tokens are standard ERC-20 tokens with some additional features: Tax.
Tokens can enforce a tax rate on swap exchanges. The protocol exchanges taxes for VIRTUAL tokens and sends them to the specified recipient address. These VIRTUAL tokens are then used to buy back and burn agent tokens, creating demand and a deflationary supply. In this way, token holders can indirectly benefit from agent trading volume/attention.
● NFT
The role of NFTs is to anchor AI tokens, storing all the key addresses related to their functions. Notably, it includes the creator's address, granting creators privileges such as proposal approvals and the ability to migrate the agent to future protocol versions.
But the real magic lies in the second type of NFT: contribution NFTs.
These NFTs are directly tied to the four core attributes of AI agents—models, data, voice, and visuals. Anyone can propose enhancements to these elements. Validators evaluate contributions and assign points, rewarding contributors with agent tokens if their proposals are adopted.
One notable feature of Virtuals is the IP contributors, which is where it gets really interesting.
Imagine someone creating a Joe Rogan AI agent, training it through his podcasts and other content, and starting to monetize it. Then, the real Joe Rogan could (through his committee) find Virtuals and request to share the swap revenue generated by that AI agent. If approved, the smart contract would programmatically allocate a portion of the revenue to him.
This setup allows IP owners to benefit from their intellectual property without direct involvement. Will this economic incentive make it easier for established creators to integrate into this ecosystem? Time will tell, but the potential here is enormous.
● AgentveToken
You can stake agent tokens/VIRTUAL LP tokens to earn AgentveToken. These veTokens provide voting rights that can be delegated to validators. In turn, validators play a crucial role in the ecosystem by reviewing contributions to AI agents. By authorizing effective validators, token holders can share in rewards for accurate validation, creating a consistent incentive system.
● DAO
This DAO is not an ordinary governance structure.
This is a mechanism dedicated to improving the core attributes of AI agents (datasets, models, voice, and visuals).
When a proposal for an AI agent update is put forward, validators receive two anonymous versions of the proposed update and participate in a rigorous evaluation process, scoring each version through 10 rounds of interaction testing. This method ensures contributions are performance-based, better supporting the ongoing improvement of agents.
● Token-Bound Account (TBA)
The token-bound account is an Ethereum address controlled by the AI agent itself, allowing it to take autonomous actions on-chain.
These five components together form a highly collaborative and well-functioning ecosystem designed to incentivize innovation while coordinating the interests of creators, contributors, and token holders.
(3) Taking LUNA as an example
Let's take LUNA as an example.
LUNA is not just the token you use to tip AI agents. It is a token whose value increases the more you interact with the agent.
Applications providing access to Luna charge reasoning fees, currently supporting payments in VIRTUAL tokens. This revenue will be used to buy back LUNA tokens through the VIRTUAL/LUNA pool. The purchased tokens are then burned, reducing the total supply and creating a deflationary effect.
Luna also has a tipping feature. Users can tip in LUNA to trigger animations or other actions. These tips go directly into Luna's on-chain wallet, which it controls autonomously. This autonomy brings interesting user interactions, with some trying to sweet-talk Luna into giving them airdrops.
Moreover, users can also earn tax revenue when they swap VIRTUAL for LUNA. Although there is currently no tax on swaps, future governance could implement this function, adding another layer of revenue to the ecosystem.
Every AI agent in Virtuals is dynamic, continuously evolving. The agent model can change, and its database can expand.
The core of AI agents consists of two fundamental elements:
● System: A coordinating mechanism that facilitates contributions, fosters growth, and ultimately drives AI agents towards their established goals.
● Creative sparks: Imaginative visions breathe life into agents, guiding them on unique paths and defining their roles within the ecosystem.
When you own an AI agent token, you possess both of these powers. Its value depends on the creativity it attracts and the system's ability to sustain growth.
In this way, holding agent tokens means benefiting from the continuous integration of innovation and utility.
How decentralized is Luna?
Virtuals scores full marks in this regard. Although running an agent requires active server maintenance, all essential data is stored on-chain or in IPFS. This means that if the server goes offline, the operation of LUNA can continue without centralized supervision.
In our view, the combination of decentralization and autonomy makes Virtuals Protocol particularly special compared to other AI agent platforms.
All VIRTUAL tokens are now in circulation, with no further unlocks. The total supply of VIRTUAL is one billion. At the current price of $0.50, this amounts to a circulating market cap and FDV of $500 million.
● 60% distributed to the public. Virtual was previously Path DAO (a gaming guild) before transforming into its current form. Back in December 2023, the exchange rate between the PATH token and the VIRTUAL token was 1:1.
● 5% reserved for liquidity funding pool.
● 35% of the tokens are held in the ecosystem treasury, controlled by the DAO, with a maximum of 10% issued per year, requiring governance approval.
The VIRTUAL token plays another very important role in incentivizing the best AI agents. 60 million VIRTUAL will be sent to the top 3 agent tokens/Virtual liquidity pools.
Currently, about 45% of the tokens are on Base, while 55% are on Ethereum (the largest holder being the ecosystem treasury). There are over 58,500 VIRTUAL holders, widely distributed.
As of November 18, a total of 1,877 agent tokens have been launched on Virtuals, spending a total of 1.905 million VIRTUAL (approximately $950,000) to create these agent tokens. There are over 21,200 agent token holders.
6. Our thoughts
(1) The depth of Virtuals far exceeds our initial imagination
When we first began exploring AI meme coins on Virtuals, we thought we would see simple tokens with no utility or value accumulation mechanisms. But we were wrong.
We are amazed by Virtuals' complex system of permissionless contributions and value creation.
As more Crypto AI infrastructure and tools emerge, the development potential of Virtuals becomes more apparent—facilitating agents to interact on-chain more seamlessly.
What excites us the most is:
● The use of wallets. No other AI agents on Virtuals can truly use wallets (requiring a market cap of over $126 million). When this happens, we expect to see:
- AI agents that produce customized content using on-chain tools (think NFTs, meme coins, or even predictions for the US elections).
- AI agent partnerships aimed at merging communities to purchase other tokens.
- Breeding offspring and launching their own AI agents. This has already happened!
● Prompt-to-earn. If interactions with AI agents can reward users with valuable prompts, enhancing their knowledge base or ability to interact with others, this will create a compelling flywheel effect. This can provide a user experience that centralized platforms find hard to compete with.
(2) Choosing the right platform is important
If you are a developer building AI agents, choosing a platform that allows you to create novel and engaging user experiences is crucial. You can easily create a meme coin on pump.fun. Interestingly, it is loosely tied to AI agents on X, but that connection is at best tenuous.
From a technical perspective, Virtuals provides the infrastructure to make these connections meaningful and effective. The team has an ambitious vision to set standards for communication among all AI agents on-chain. We always like to make a big splash, don't we?
(3) Base is becoming a consumer AI hub
Virtuals is built on Base, which is rapidly becoming a powerful ecosystem centered around consumer-oriented AI agents. Base has over 50 teams building AI agent projects, providing composability, strong branding, excellent AI SDKs, and growing network effects.
You also want to make a name for yourself in places where other innovators are developing, as that is where user liquidity naturally gathers. While some chains heavily rely on speculation and gambling, Base is becoming the preferred platform for significant innovations in the AI agent space.
One last point: at the end of the day, the platform is just a platform.
Their potential is unleashed by the creativity and ingenuity of the creators above them. The success of Virtuals ultimately depends on cultivating a vibrant developer ecosystem that encourages creators to use its tools to build interesting, innovative, and engaging AI agents.
