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AI Agents are 0-to-1 this cycle

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Every crypto cycle, new primitives that push the entire space forward are born.

In 2017, ICOs spawned the alt-L1 category.

In 2020, DEX pools ushered in DeFi summer.

In 2021, 10k collections marked the NFT season.

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Notably, it was not the technology that marked the starting point for each vertical, but the funding primitive, coupled with the timing of a bull cycle. Timing met opportunity.

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By the end of 2024, it is now obvious that for the cycle of 2025, the new vertical is AI agents, and the funding primitive is the bonding curve popularised by pump.fun with memecoins.

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Within this newborn vertical, Virtuals Protocol stands as the first mover with critical mass, which we believe will continue growing and dominate.

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Why AI Agents?

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Agents are the next evolutionary phase for AI. 

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Phase 1 - Passive: AI started off as a tool that we wield, like ChatGPT or Midjourney, which serve when prompted. 

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Phase 2 - Active: We are entering the next phase whereby agents, once given a goal, can reason, plan, and execute actions autonomously. 

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Luna, a sentient idol by Virtuals Protocol, plans her online content, adjusts based on engagement, and even coordinated a mural challenge where she paid out $500 to the winner from a wallet she controls – all autonomously. Her sentient brain is public at: https://terminal.virtuals.io/

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https://x.com/GraffitiSalad/status/1858896119193104689

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Phase 3 - Collective: With sufficient intelligence, agents could influence and coordinate other agents or humans. Humans may even proactively cede power to a superintelligence as “AI judges” or “AI CEOs”. The sci-fi endgame here is literally nations run by ASI.

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Vitalik wrote about this, while warning about verifiable AI and adversarial machine learning: https://x.com/VitalikButerin/status/1752291413503729751

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The message is already resounding, from tech giants, to startups, and of course within crypto.

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Ex-Google CEO Eric Schmidt, when asked about the most important trends in AI in 2025, laid out 3: infinite context windows, text-to-action, and agents

https://x.com/0xPrismatic/status/1824651599010205719

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The partners at Ycombinator dedicated an entire podcast episode making the case that “Vertical Agents Could Be 10x Bigger Than SaaS”, predicting top agents worth $300 billion.

https://x.com/ycombinator/status/1859976031047966978

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Jeffy Yu, the creator of Zerebro, goes one step further by staking the claim that we have entered Web4.

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“Web4 is the web in its next, most radical form. It’s a web that no longer just reacts to our commands, but one that anticipates, plans, and acts. It’s a web where artificial intelligence is embedded into every corner, where agents can execute complex tasks, generate creative works, and autonomously innovate in ways we haven’t yet fully imagined.”

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https://x.com/jyu_eth/status/1857007875719066013

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Why Virtuals Protocol?

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Virtuals Protocol is the co-ownership marketplace for AI agents.

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Once network effects are established, they are hard to displace. As evidenced by its swift rise to unicorn status, Virtuals Protocol has clearly hit an economic flywheel: 

• $VIRTUAL is needed to create agents, seed liquidity pools, and buy agent tokens
• Demand to create and buy agent tokens drives token price
• The wealth effect from $VIRTUAL appreciation flows into new agents; and successful agents collect trading revenue in $VIRTUAL which can be reinvested

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The low barrier invites experimentation and speculation, while “red-pilled” agents above a certain market cap unlock full agentic capabilities.

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This simple model triggered a Cambrian explosion of agents. As of 5 Dec:

• >10k agents launched, on 1 Dec itself 1k agents were launched
• $1.2B trading volume by 164k users, which generated $20m trading revenue since October, and if annualised is $146m ARR
• 17m $VIRTUAL locked in liquidity pools, which is 1.7% of supply, and if annualised is removes 12% of supply per year

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The flywheel drives demand, the revenue sustains continued R&D, and the deflationary economics captures value to the token. Furthermore, the revenue and liquidity requirements are denominated in $VIRTUAL, which could grow with price appreciation.

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https://dune.com/virtual_protocol/virtual-protocol-on-base/456e9550-279e-417d-a99c-b406eb6cbd78

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And the trajectory of growth continues to accelerate. Established projects are now flocking to Virtuals Protocol, locking 41600 $VIRTUAL to create their own agents. Aside from brands and IP like GAM3S.GG, reputable AI teams within crypto are also launching agents, including Seraph by a Bittensor Subnet, and Pond Hub by PondGNN.

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https://x.com/JDHyper/status/1864033942161981441

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Economics aside, the underlying tech stack is also cutting edge.

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Agents are built to scale via:

• Modular design including cognitive, visual, audio cores
• Open contribution, whereby anyone can contribute datasets and model upgrades
• Permissionless interactions, eventually open to any apps via SDK access

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The protocol incorporates the latest of the Web3 stack. To illustrate:

• Users can use social log-ins with Privy
• Agents are NFTs which own their own wallets using ERC-6551
• Contracts and assets on Base for scale and distribution

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https://x.com/0xCygaar/status/1864182285278355881

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And of course, the team is cracked.

• Co-founders from BCG, Imperial College, long-time crypto natives

• AI team of PhDs from MIT, Harvard, Cambridge, etc.
• And importantly, the team persisted through the bear market, pivoting from a gaming guild in Dec 2021, experimented with a venture studio model through 2022, inadvertently accumulated AI talent and infra, and finally committed to a full consumer AI x crypto and rebranding in Dec 2023

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https://x.com/everythingempt0/status/1813825906894651740

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Finally, there is one secret behind Virtuals Protocol’s momentum which is impossible to replicate: a 3-year long conviction test

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• Since TGE in December 2021, the team, community, and investors all had to hold through or sell into the bear market.
• And in December 2023, any remaining weak hands were eliminated via a buyback program in lieu of the rebranding from PathDAO to Virtuals Protocol.
• And even from the rebrand in Dec 2023 until now, it has been almost an entire year without much price speculation, inviting time-based capitulation.

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https://x.com/dcfgod/status/1853611135762911355

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At LongHash Ventures, we started getting to know Jansen and Weekee in March 2022, and it was in March 2023 post-rebrand where we sealed our investment. Since then, our conviction has only grown as the team continues to make steady progress towards the North Star of millions of users co-owning agents.

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https://x.com/LongHashVC/status/1851627143127794142

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How high will we fly?

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From a market share perspective based on Coingecko:

• The market cap of the AI Agent vertical, including $VIRTUAL itself, sits at $9.3B at the time of writing.
• DeFi market cap is at $135B in aggregate. DePIN is at $45B, NFT tokens at $42B, and gaming is at $32B.
• We believe the AI agent vertical will rise to rival each of these, and perhaps even beyond. As the total crypto market cap grows, the rising tide will lift the strongest verticals and especially category leaders like Virtuals Protocol.

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https://x.com/cburniske/status/1790066147657703778

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From a mindshare perspective, based on Kaito: AI is the #1 narrative for the last 12 months, and in fact continues growing, exceeding 30% the last 30 days

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The mindshare of Virtuals Protocol itself within the AI vertical has risen from top 20 in the last 12 months, to top 3 in the last 1 month.

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As the AI world continues to accelerate, agents will continuously adopt the latest models. Since the public release of ChatGPT in November 2022, AI has hit an exponential curve from every angle. Sometimes, we find ourselves in awe, and sometimes, we shudder.

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https://x.com/sama/status/1621556257323888641

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