The Rise of AI Agents: Innovations and Challenges of the Virtuals Protocol

AI agents are evolving from simple assistants into autonomous systems that provide real value across multiple industries, becoming key assets particularly in areas such as gaming, entertainment, and business automation. These agents are capable of creating content, engaging users, and optimizing workflows, bringing greater efficiency and new ways of interaction to projects.

The AI gaming market is expected to grow from $4.2 billion in 2023 to $42.1 billion in 2032, with key drivers including AI-enhanced games and immersive experiences. Generative AI also plays an important role in real-time content creation, with its market size expected to increase from $1.47 billion in 2024 to $3.39 billion in 2028.

AI partners further enhance user immersion and establish dynamic relationships, as Web2 platforms like Replika and Character.AI meet the growing demand for personalized AI-driven experiences. With large language models revolutionizing content creation, AI partnerships are expected to grow significantly, with global revenues projected to increase from the current $30 million to between $70 billion and $150 billion by the end of the century.

In the Web3 space, the Virtuals protocol is leading this shift by integrating AI partners into consumer applications, particularly in the gaming and entertainment sectors. The protocol aims to shape the future of digital entertainment by combining AI-driven interactions with blockchain-based co-ownership.

Virtuals protocol vision

The Virtuals protocol is building a system that transforms AI agents into jointly owned assets in gaming and entertainment, allowing users to gain profits from them. These agents can work on platforms like Roblox and TikTok, performing automated tasks such as managing on-chain wallets and interacting with digital environments. Tokenizing the agents enables users to invest and profit from their growth.

The platform addresses three main issues:

1. Simplifying AI integration in applications
2. Earn returns for contributors through an immutable contribution vault
3. Allow non-professionals to own AI agents through tokenization.

Virtuals protocol focuses on gaming and entertainment, utilizing AI to generate personalized content and promote decentralized co-ownership aligned with ecosystem goals.

Its 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 the game, this has transformative potential. Imagine that in the game, AI agents are not just passive NPCs but fully autonomous characters that exist continuously across platforms. These AI-driven characters can remember previous interactions, adapt to your gaming style, and move seamlessly between different gaming environments. Envision an AI-controlled ally evolving with you, providing personalized experiences across platforms.

The Virtuals protocol generates autonomous multimodal entities within the framework of G.A.M.E(, achieving this by combining AI with blockchain technology. This enables developers to integrate AI agents through APIs and SDKs, allowing the agents to learn from interactions. The blockchain ensures the security of shared ownership and rewards, making these agents valuable digital assets.

Imagine an AI virtual companion that can connect with you on your phone, social media, and VR, aside from gaming. This companion can not only complete tasks but also learn your daily habits and adapt to your needs. If you feel stressed, it might suggest ways to relax or adjust your schedule. Accompanying you across all platforms, it will provide personalized experiences. With 24/7 availability, it could transform industries like social engagement and advertising by offering customized content and reshaping the way businesses connect with consumers.

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Luna: An Example of AI Influence

The AI character Luna, launched by Virtuals and powered by a large language model, has gained over 500,000 followers on TikTok, showcasing the impact of interactive AI. Luna has recently expanded to the X platform, and with the upgrade to Sentient Mode v2.0, she can autonomously control her account, post, reply, and interact with users without human supervision. Her audience is expected to grow further, demonstrating the participation potential of AI across various digital platforms. Luna operates completely transparently, allowing users to explore her AI thinking in real time, observing how she collects data, reflects, plans, and executes in 30-second cycles.

Luna provides continuous interaction through 24/7 live broadcasts, offering an all-time experience that human creators cannot match. Whether answering questions, providing real-time updates, or participating 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 the 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 valuable digital assets that can be owned, traded, or shared within a decentralized ecosystem. This introduces new levels 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. Its exclusive token $Luna effectively integrates AI innovation with decentralized finance in a transparent and interactive manner.

By leveraging multiple revenue sources such as paid subscriptions ), donations, token rewards, and virtual goods, Luna may be poised for growth. According to recent research, AI partners could generate up to $150 billion in revenue by 2030 through user engagement, advertising, and microtransactions, as the demand for immersive digital interactions expands.

The Virtuals protocol aims to create a decentralized market for jointly owning and using 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" co-ownership approach. Through a fair token issuance without insider involvement, the income is used for the buyback and destruction of on-chain agent tokens, creating a deflationary effect. Just like memecoins attract attention, AI agents offer the potential to generate actual income.

protocol architecture

The Virtuals protocol integrates AI, tokenization, and decentralized governance to create a collectively owned ecosystem. For each new AI agent, one billion tokens are minted, granting users ownership and decision-making power. Through these tokens, users can influence the behavior and upgrades of the agents, promoting active community participation.

Revenue generated through user interactions ( such as virtual events or premium features ) is used to pay for AI operational costs and develop agents' on-chain treasury. In addition, the protocol adopts a buyback and burn mechanism to reduce token supply, with the intention of gradually increasing token value over time.

The initial agency issuance ( IAO ) ensures the fair introduction of the new AI agency by locking $VIRTUAL tokens to create a liquidity pool. This will directly link the success of the agency to community participation and market dynamics.

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.

The public API enables AI agents to monetize through various applications ( including gaming and entertainment ). Users pay premium interaction fees using the $VIRTUAL token, which are then used to buy back and burn agent tokens, reducing supply and driving value growth. As more applications adopt AI agents, the demand for AGENT and VIRTUAL tokens is expected to rise, further increasing their value.

Contributors can expand the capabilities of the AI agent 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 supervise AI performance and are rewarded or punished based on decision outcomes.

The protocol provides emission rewards to incentivize the creation and support of high-quality AI agents. These rewards are distributed to the top three liquidity pools with the highest TVL, encouraging competition among creators to develop the most productive agents. The system incentivizes continuous improvement, benefiting both liquidity providers and the ecosystem.

Token Economy

$VIRTUAL token is the core currency of the Virtuals protocol, used for all agent token transactions. It operates on the Base and Ethereum networks.

Each proxy token is paired with $VIRTUAL to form its liquidity pool and requires $VIRTUAL to create new proxies. This locked liquidity exerts deflationary pressure on the tokens. Users can exchange USDC( or other currencies) for $VIRTUAL to purchase proxy tokens, thereby creating a continuous demand similar to ETH or SOL in their respective ecosystems.

The income from AI services, such as payment for each inference, is charged in $VIRTUAL and is directly transferred from the user to the on-chain agent. A portion of the income is used for the buyback and burn process, reducing the supply of agent tokens and increasing their scarcity, aiming to enhance long-term value.

The total supply cap of $VIRTUAL is 1 billion tokens, all of which are fully unlocked. The allocation includes 60% in public circulation, 5% allocated to the liquidity pool, and 35% stored in the ecosystem treasury. This treasury is managed by a DAO, with a maximum annual emission cap of 10% over the next three years.

Although it has not yet traded on a tier-one exchange, $VIRTUAL supports a growing ecosystem, currently valued at $150.7 million, ranking 264th, with a fully diluted valuation of $150.25 million. Its deflationary mechanism 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 a token price of $0.661 at that time. Subsequently, small financing rounds were conducted on Enjinstarter and PAID Network, raising $125,000 and $250,000 respectively, with a token price of $0.015.

Competitive Landscape

The AI-driven Web3 gaming sector is developing rapidly, 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 also assets capable of generating real value. These projects share some common goals:

• AI Integration: AI agents not only run in the background, but they actively enhance gameplay, interact with users, and bring new levels of immersion through shared ownership.
• Decentralized Ownership: Through a tokenization 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, enhancing their utility and value, especially as the metaverse continues to grow.

( Nim Network

Nim offers an AI-driven game blockchain stack on the Dymension network, featuring flexibility and customizable modular AI agents that can be integrated into multiple games.

The uniqueness of Nim: Nim focuses on creating AI agents that can operate across different games, and its collaboration with the AI Gaming Coalition further strengthens its leading position in AI and gaming partnerships.

) Altered State Machine ###ASM###

The core innovation of ASM is its AI brain—an evolutionary NFT that powers NPCs and virtual avatars in a decentralized environment. Although gaming is its primary focus, ASM is also exploring the metaverse. These AI brains can be trained, evolved, and traded in ASM's marketplace.

The uniqueness of ASM: The evolutionary AI brain and NFT market of ASM enable users to customize and trade their AI entities, adding a new layer of personalization and monetization.

( Olas

Olas has taken a broader approach,