Virtuals Protocol (VIRTUAL) tokenomics

The Virtuals Protocol is a decentralized platform on Base that enables the creation, deployment, and monetization of AI agents. Its native token, $VIRTUAL, is an ERC-20 token on Ethereum, with an equivalent bridged version on Base, and serves as the core economic engine for the ecosystem.

Issuance Mechanism

The $VIRTUAL token operates with a maximum token supply of 1.00 billion.

The issuance mechanism for the $VIRTUAL token itself is based on this fixed supply. However, the protocol features a unique tokenization process for the AI agents launched on the platform, which involves minting and a bonding curve mechanism:

• Agent Token Minting: When a new Virtual Agent is created, 1.00 billion tokens specific to that agent are minted.
• Agent Launch Fee: The creator of a new AI agent must pay a fee of 100 $VIRTUAL tokens to initiate the launch process.
• Bonding Curve: The newly minted agent tokens are placed on a bonding curve, where they are paired with $VIRTUAL tokens. During this initial phase, a wrapped version of the agent's token can only be traded on the Virtuals platform.
• Graduation: If the agent's market capitalization reaches approximately $610,500.00 (or the bonding curve reaches 42,000 $VIRTUAL tokens), the agent "graduates." At this point, a liquidity pool (LP) of the Agent Token / $VIRTUAL pair is created on Uniswap.

Allocation Mechanism

The initial allocation of the $VIRTUAL token is structured across three main categories:

Key Allocation Details:

• Ecosystem Allocation: The 35.00% allocated to the "Ecosystem" is earmarked for community incentives. The project documentation specifies that this allocation will not have more than 10% emission per year for the next three years. However, the specific future methods for distributing this allocation have not been disclosed.
• Project Team: The project team did not receive a direct allocation of $VIRTUAL tokens. However, $VIRTUAL was airdropped to existing $PATH tokenholders, and the former PathDAO had previously allocated 15.00% of its total token supply to the project team.
• Acquisition: Users could initially acquire $VIRTUAL via an airdrop on December 23, 2023, where $PATH tokenholders received $VIRTUAL at a 1:1 rate during the migration from PathDAO. Currently, $VIRTUAL can be purchased on centralized exchanges (e.g., Bybit, OKX, Gate.io) and decentralized exchanges (e.g., Uniswap, Aerodrome).

Usage and Incentive Mechanism

The $VIRTUAL token is a utility and governance asset central to the Virtuals Protocol ecosystem.

Primary Utility of $VIRTUAL:

• Routing Currency: $VIRTUAL is used as the "routing currency" for transactions within the Virtuals Protocol platform, including purchasing agent tokens.
• Agent Launch: A fee of 100 $VIRTUAL is required to launch a new Virtual Agent.
• Liquidity Pairing: $VIRTUAL serves as the base pair for all AI agent tokens, facilitating liquidity and trading for these co-owned assets.
• Governance: $VIRTUAL tokenholders can participate in the protocol's governance by delegating veVIRTUAL (a non-tradable, credit-based feature granted at a 1:1 ratio to $VIRTUAL held). Proposals can be made to influence protocol upgrades, approve new Virtual Agents, and approve contributions. Tokenholders with over 00 million veVIRTUAL can author a proposal.

Revenue and Burning Mechanisms:

The protocol employs a buyback-and-burn mechanism to manage the supply of agent tokens, which is funded by inference payments from the agent's use.

• Future Revenue Model: The project team envisions users paying $VIRTUAL for services like personalized interactions, merchandise, or asking AI agents questions. The revenue generated from these payments will be split:
  1. A portion will cover the cost of AI inferences.
  2. Another portion will be funneled into the project's treasury for growth and operational costs.
  3. As the treasury grows, there will be periodic buybacks of the agent’s token, which will then be burned.
• Note on Revenue Sharing: Under this model, revenue will not be shared with $VIRTUAL tokenholders or other platform users.
• Transaction Fees: Users buying $VIRTUAL tokens or agent tokens through platforms like Aerodrome Finance are subject to a 1% transaction fee, which supports the agents' operational costs.

Future Incentives (Staking and Rewards):

As of December 6, 2024, the protocol does not have live staking or liquidity provisioning mechanisms, and tokenholders do not currently earn fees or compensation. However, future plans include:

• SubDAO Validators and Staking: Tokenholders will be able to delegate $VIRTUAL-paired LP tokens to subDAO validators. These validators will decide on the management and enhancement of the project’s AI models and will be rewarded for selecting successful agents and penalized for selecting poor-performing ones.
• SubDAO Treasury Funding: Rewards for staking will be paid from the subDAO treasury, which will be funded by payments from interacting with AI agents, the 1.00% tax on trading fees, and protocol emissions.

Locking Mechanism and Unlocking Time

The primary locking mechanism relates to the liquidity pools created for the individual AI agent tokens, rather than the $VIRTUAL token itself.

Liquidity Lock for AI Agent Tokens:

• Mechanism: When an AI agent token "graduates" from the bonding curve phase (reaching a market cap of approximately $610,500.00 or 42,000 $VIRTUAL tokens), a liquidity pool (LP) is formed on Uniswap with the Agent Token / $VIRTUAL pair.
• Locking Period: This liquidity pool is intended to be locked for ten years, adhering to "Fair Launch Principles" that include no pre-mining and a fixed total supply for the agent token.
• Ownership Discrepancy: Project documentation states that the liquidity pool will be locked for ten years but held by the agent's creator.

$VIRTUAL Governance Token Locking:

• veVIRTUAL: The governance token, veVIRTUAL, is a non-tradable, credit-based feature granted to $VIRTUAL tokenholders at a 1:1 ratio.
• No Locking Requirement: There is no locking or escrow mechanism required to receive veVIRTUAL. However, veVIRTUAL must be delegated to an address before it can be used to vote on proposals.