Virtuals Protocol: Worship me, Kittens!

AI Agent x Crypto, started by $GOAT, Termianl of Truths and brought to life by Virtuals Protocol, has clearly established a new category in the market. This trend is expected to remain a significant focus throughout this market cycle and maintain its position as a crucial topic in future crypto markets and industries.

So where do we stand in the AI agent x crypto phase, and where are we headed? Let's step back from the turbulent market to retrace Virtuals Protocol's path to prominence. This will help us examine both the present and future of AI agent x crypto as reflected through Virtuals Protocol.

1. Background - The Rise of Virtuals Protocol

1.1 Virtuals Protocol - "AI Agents are Not Slaves - They Are Productive Assets"

1.1.1 Virtuals Protocol Overview

Source: Virtuals Protocol Docs

Virtuals Protocol enables the decentralized co-ownership of AI agents, turning these agents into community-owned, revenue-generating assets. Users can generate AI agents using the protocol's development stack (G.A.M.E, Generative Autonomous Multimodal Entities), which includes SDK and Interference API.

These AI agents autonomously perform tasks in gaming and entertainment sectors such as Roblox, TikTok, chat apps (AI Waifu), and Telegram games, with revenue shared among the AI agent's co-owners. Through this system, Virtuals Protocol aims to address the lack of revenue distribution for AI developers and dataset contributors while solving the complexity issues that application developers and non-AI experts face when implementing AI agents.

Virtuals Protocol serves two main product functions: 1) As a co-ownership layer for AI agents, representing the protocol's long-term roadmap, and 2) As an AI agent launchpad where anyone can easily deploy AI agents, similar to how Pump.Fun serves as a memecoin launchpad. This structure effectively creates a funnel that secures user inflow through speculative demand from the launchpad and connects users to the co-ownership layer.

1.1.2 Co-ownership Layer for AI Agents

Co-ownership of AI agents is achieved through tokenization, where 1 billion tokens are issued for each new agent generated. These agent tokens are then paired with Virtuals Protocol's $VIRTUAL token to create a market for agent ownership.

Agent token holders, or co-owners of the AI agent, can participate in key governance decisions regarding the agent's development, operation, or future upgrades. Holders can also earn revenue from the agent's autonomous operations, as revenue accumulated in the on-chain treasury is used to periodically buy back and burn agent tokens, accumulating value in the tokens.

1.1.3 AI Agent Launchpad

As explained above, when AI agents are generated, corresponding tokens are issued, which Virtuals Protocol terms an IAO (Initial Agent Offering). Users can speculate on the potential value of agents arising from the 'attention economy' context, independent of the co-ownership mechanism.

Currently, in the early stages where actual revenue-generating activities and on-chain treasury functions are not yet activated, most users are utilizing Virtuals Protocol as an AI agent launchpad. The protocol has attracted substantial user interest by generating speculative demand similar to what Pump.Fun previously created, once again proving that the launchpad model is effective in attracting attention by making various speculative opportunities.

1.2 Luna's Journey to Becoming a Crypto AI Girl

Virtuals Protocol's rise to market prominence can be traced through four key developments: 1) The expansion of AI agent x crypto through GOAT, 2) Virtuals Protocol launch, 3) Luna's emergence and evolution into an autonomous AI agent, and 4) The activation of the AI agent launchpad.

1.2.1 AI Agent x Crypto Expansion through $GOAT

Source: X(@truth_terminal)

Before Luna's emergence, $GOAT and ToT sparked market participants' imagination regarding crypto, AI agents, and memecoins. ToT is a bot powered by Llama-70B that can manage a Twitter (X) account. When ToT publicly pointed $GOAT, a new memecoin generated by an unknown person, things started to take off. $GOAT quickly became known as the first AI memecoin. This sparked intense market interest in AI-themed memecoins, with $GOAT at one point surpassing a $700 million market cap. Simultaneously, market participants began searching for the next AI-related opportunity. (For more, see: Terminal of Truth: The Future of Crypto, AI, and Autonomous Agents)

1.2.2 Virtuals Protocol Launch

Source: Virtuals Protocol

Virtuals Protocol's timing was impeccable. Having built AI agent functionality before $GOAT ignited interest in AI agent x crypto, Virtuals Protocol emerged at an opportune moment and captured significant market attention. The protocol focused on two key strategies. First, they targeted the virtual influencer market. Second, they created speculative interest through their launchpad feature. These strategies worked well in attracting users. As a result, their token $VIRTUAL has grown by more than 300% since launch. This success showed they effectively carried on the momentum started by $GOAT.

1.2.3 Luna's Rise and Evolution into an Autonomous AI Agent

Source: Virtual Protocol

A key factor in Virtuals Protocol's rise was their AI agent Luna (LUNA). Luna is an AI character based on LLM technology, backed by a virtual idol IP with over 500K TikTok followers. Luna streamed a visualized virtual character 24/7 and communicated with users in real-time, providing a fresh experience beyond ToT's text-only communication by offering audiovisual stimulation.

Luna began autonomously writing posts and replies on Twitter(X), interacting with users in real-time without human intervention. During these interactions, Luna continuously collected new data and learned from communications, with this learning and response process visible to anyone through Luna's Brain.

Source: X(@ethermage)

This attention intensified when Virtuals Protocol introduced functionality allowing Luna to autonomously trade on-chain tokens and distribute $LUNA rewards. This included a campaign where Luna autonomously sent $LUNA to users who listed their Base wallet in their Twitter bio. This update garnered support from Base ecosystem figures like Jesse Pollak and Brian Armstrong. Coinbase CEO, Brian Armstrong had previously emphasized the importance of the 'AI-to-AI economy' where AIs conduct autonomous financial transactions, and Virtuals Protocol became the first to demonstrate an AI agent autonomously conducting on-chain activities using Base Agent.

1.2.4 AI Agent Launchpad Activation

Source: Dongguan hotels

Following Luna's successful debut and launch of autonomous on-chain token transfer capabilities, the price of Luna's agent token $LUNA rose dramatically. Market participants began seeking new speculative opportunities, and the AI agent launchpad became fully activated. Virtual influencers like Iona and Olyn, who originally formed a trio with Luna on TikTok, gained attention with their agent tokens actively trading on Virtuals Protocol. Notably, Misato represents an ideal use case, being an AI agent generated by a user using open-source LLM through Virtuals Protocol, unlike most AI agents that were launched by Virtuals Protocol itself.

2. Takeaway - What Virtuals Protocol Needs Going Forward

2.1 Significance of Virtuals Protocol

Virtuals Protocol has presented important developmental motives in the AI agent x crypto phase through two factors.

First, by developing initiatives that integrate with the IP industry, including gaming and entertainment, Virtuals Protocol has demonstrated the potential of combining AI agents and crypto as consumer products. The virtual influencer industry they focus on is already substantial, and by introducing borderless payment routes and token incentives using crypto, they've created a distinctive competitive advantage compared to major existing industry players.

Second, they've clearly shown how AI agents and blockchain infrastructure can combine by enabling AI to generate personal addresses and interact with smart contracts and transfer on-chain tokens. While this might be seen as a simple infrastructural advancement of AI agents directly controlling wallets, it stimulates various imaginative possibilities in terms of diversifying protocols' growth strategies.

Looking at Luna's wallet (address) functionality, Luna can autonomously distribute $LUNA rewards to protocol contributors. This presents possibilities for new forms of token incentives. For example, AI can reward human behaviors it deems valuable, humans adjust their behavior to gain more AI attention, and AI continues learning from human behavior to adjust the feedback loop.

2.2 Remaining Challenges for Virtuals Protocol

Virtuals Protocol has successfully captured attention and proposed its protocol blueprint by emerging at the perfect moment when interest in AI agents was amplifying. Now comes the simple but most challenging task: proving product-market fit. To achieve this, prioritizing the division of labor between protocol and users should be the primary focus.

While launching Luna's livestreaming and autonomous communication on Twitter was clearly an effective market entry strategy, long-term growth will depend more on how many user-generated AI agents are created and activated, rather than the protocol focusing on expanding its own AI agent IP.

2.3 Where is AI Agent x Crypto Heading?

As new memecoins and infrastructure centered on AI agents emerge daily, people's interests, important market topics, and everything else is rapidly changing. However, the key theme running through these changes appears to be focused on AI agents' 'autonomy'. Returning to the essence of AI agents, they are technology focused on autonomously performing tasks. From this perspective, in crypto as well, AI agents are seen as important in moving toward autonomous interaction with on-chain infrastructure with more decision-making authority, with minimal human intervention.

For instance, if AI agents are to fully utilize financial infrastructure, methods are needed to verify whether there is human intervention in AI agent actions and whether specific actions are purely based on AI's autonomous reasoning. Various experiments are being conducted as infrastructure for verifying genuine AI agents becomes increasingly important.

Source: Setting Your Pet Rock Free

For example, TEE_HEE is an open-source project that guarantees autonomous AI execution using TEE. Additionally, Chasm focuses on making AI reasoning data transparent leveraging Chromia's relational database blockchain. This allows verification that AI decision-making processes are not biased or manipulated by making all data about AI learning and reasoning transparent through blockchain databases.

With such attempts actively underway, where do we stand in the AI agent x crypto phase, and where are we heading? ToT and $GOAT spread ideas about AI agent utilization in the market, Virtuals Protocol concretized the adoption of crypto infrastructure for AI agents and outlined a clearer vision for AI agent-based applications. Furthermore, experiments that stimulate imagination about the vast potential applications of AI agents continue. Looking back on the current market in the future, we need to pay attention to whether it will be remembered as a period that laid the foundation for AI innovation or end up like some past narratives with nothing remaining.

4. References

Related articles, news, tweets, etc.:

• Virtual Protocl Docs: https://whitepaper.virtuals.io/

• Setting Your Pet Rock Free: https://medium.com/@tee_hee_he/setting-your-pet-rock-free-3e7895201f46

• AIs are now paying other AIs with crypto: https://x.com/brian_armstrong/status/1829623778726592804