Development Prospects and Market Analysis of the AI Agent Track

Before analyzing the AI Agent track, we need to take a comprehensive look at the changes the cryptocurrency industry has undergone during this cycle.

The Divergence of Bitcoin and the Cryptocurrency Market

Bitcoin was almost synonymous with the entire cryptocurrency market. Buying Bitcoin means buying crypto assets and endorsing the concepts of cryptocurrency and decentralization.

However, after the approval of the Bitcoin spot ETF, it seems that buying Bitcoin and recognizing its value has become a mainstream view among politicians and listed companies. However, the existential significance of cryptocurrencies, especially Ethereum and other tokens, has not been recognized by mainstream society and funds.

This differentiation mainly stems from the differences in asset positioning:

Bitcoin is regarded as an alternative asset similar to gold, and its properties of hedging against inflation and preserving value beyond sovereign currencies are widely recognized.

Other tokens like Ethereum are still seen as technology concept stocks lacking mature and sustainable business models in the eyes of the traditional financial sector. Compared to tech giants like Nvidia, Microsoft, and Amazon, which have users, products, and demand, the valuations of these crypto assets are not low, and their return elasticity is also insufficient, resulting in a low risk-reward ratio from an asset allocation perspective.

Another important factor is the overall macro environment. Current interest rates and the degree of monetary easing cannot be compared to the massive liquidity injection during the last pandemic. Coupled with the booming AI industry, this has led to a lack of appeal for cryptocurrencies among off-exchange funds. With limited funds, the capital directed towards AI stocks and GPUs finds it difficult to flow into altcoins and Ethereum.

Severe Imbalance in the Internal Ecology of the Cryptocurrency Industry

Due to the difficulty in attracting off-market funds, we need to examine the situation of funds within the industry. A rough estimate of the current total amount of on-market funds ( the total amount of stablecoins + the contract positions ) has far exceeded the last bull market. However, apart from Bitcoin, most tokens have not reached new highs, reflecting a serious imbalance between supply and demand.

There are a large number of new projects with overestimated valuations on the supply side, most of which have not found practical application scenarios and lack real users. The existence of these projects stems from the excessive financing of cryptocurrency VCs during the bull market of 2022. Due to investment cycle constraints, funds have ignored project quality in order to complete investment tasks, leading to blind large-scale investments.

However, there is insufficient buying power on the demand side. Previously, the main exit channels were centralized exchanges, but after the FTX incident, exchanges became a regulatory focus, facing huge fines and legal risks. This led exchanges to shift their strategy from expanding users and increasing trading volume to pursuing profits. Exchanges have scaled back offline expansion and regional operations, halted profit-sharing activities like IEOs, which in turn weakened the on-site demand and the growth momentum of buying power.

Unique Advantages of AI Agents Compared to Meme Coins

The core application scenarios of the cryptocurrency industry are asset trading and issuance. Each round of a bull market requires new asset issuances and trading models to generate wealth effects, which in turn leads to leverage of funds within the circle and the entry of funds from outside the circle.

In the current environment where projects are generally overvalued and supply and demand are severely out of balance, Meme coins have taken the lead in breaking through. Their characteristics of no VC financing and fair launches have created a wealth effect through rapid surges in low market cap, driving the development of new asset issuance and trading platforms.

However, the biggest characteristic of Meme coins is the lack of actual utility. This financial nihilism, while suitable for users with extreme risk tolerance, poses too high a barrier to entry for most practitioners and institutions. It's hard to explain to fund LPs the reason for investing in a particular Meme coin is simply "it's too cute."

In contrast, the AI Agent is able to consolidate a broader consensus:

• A story can be told to the fund LP about investing in AI infrastructure.
• Extreme risk-takers can be told about on-chain memes and speculative logic.
• Explain the logic of investing in AI Agent track projects to ordinary practitioners and VCs.

AI Agent has become the greatest common divisor of the Web3 industry in this cycle.

Investment Analysis Framework for AI Agent Projects

It is crucial to understand how AI Agents are reshaping the cryptocurrency supply chain and valuation logic.

Through the recent rounds of bull markets, the industrial chain and valuation logic of blockchain projects have gradually taken shape.

• Layer 1 public chain: Ethereum has a market capitalization of about $400 billion, while Solana is about 1/4 to 1/3 of that.
• Middleware: such as Chainlink, with a market cap of about 5% of Ethereum.
• Basic protocols such as DeFi: Uniswap and AAVE account for approximately 3% and 1.25% of Ethereum's market value, respectively.

The underlying logic of DeFi is based on smart contracts, and its functional limitations also constrain the innovation of other applications.

Now that AI is integrated into the underlying technology stack of blockchain, the AI layer runs in parallel with smart contracts, forming the foundational layer of the entire chain, known as the Agent layer. This explains why previous AI projects failed to lead a new narrative - they still regarded blockchain merely as an incentive layer, not breaking out of the realm of smart contract applications (DAPP). The AI Agent exists as the adhesive between the underlying blockchain and off-chain data, providing a better user interface.

Based on this logic, we can assume:

• The AI Agent framework may reach 5% of Ethereum's market value. For example, ai16z currently has a market value of about $2.5 billion, with 8-10 times growth potential.
• A framework and launch platform similar to Virtual can be compared to Chainlink and Uniswap, with a potential growth space of 6 times.
• Freysai(FAI) is similar to AAVE, with a market cap limit of 1.25%-3% of Ethereum, corresponding to 5-10 billion USD.
• Other leading projects such as Spore, aixbt, etc., have a lower limit of about 1 billion USD valuation, and the upper limit depends on market developments.

How AI Agents are Changing Industry Ecosystems

The wealth effect of this cycle mainly occurs on-chain, but on-chain operations still have a high threshold for off-chain users and institutions. The biggest advantage of AgentApp lies in its interactivity:

• Buy Assets: Buy coins directly from traditional exchange apps to the Agent application using natural language, and even provide smart trading assistance and investment decision-making.
• Financing: From traditional VC routes to directly showcasing products, communicating with the community, and obtaining funding support
• Coin Issuance: From complex test networks, fundraising, and listing processes to AI automated coin issuance, Agent managing private keys and liquidity pools, and automated community marketing.

This cycle follows several important standards:

• Open source project, visible application, verifiable code
• Funds are relatively safe, with private keys controlled by the Agent to prevent developers from withdrawing from the pool.
• Transparency in financing and token issuance to avoid issues such as insider trading on exchanges and opaque airdrop rules.

Although the issuance of tokens by agents still faces issues such as on-chain front-running and information asymmetry, there has been significant progress compared to the past's black box operations. AgentApps that can win user trading access are likely to be benchmarked against the valuation of exchange platform tokens.

The Future Vision of AI Agents

Some believe that AI Agents will form a new AI society in the future, creating an economic scale exceeding one trillion dollars. In this AI economy, Bitcoin and cryptocurrencies will become important currencies and economic circulating assets.

For AI life forms, AGI is the brain, robots are the body, and cryptocurrency grants autonomous identity and economic systems.

In short: don't just think about what AI can do for you, but consider what you can do for AI.

Development Stages of AI Agent Projects

According to market data, the total market capitalization of AI Agent is approximately $18.6 billion, accounting for about 64% of the total market capitalization of DeFi projects, 75% of the GameFi sector, and 62% of the market capitalization of all Layer 2s.

Although the market capitalization statistics are somewhat rough, judging by market sentiment, the AI Agent sector has just passed the halfway mark, equivalent to midday, and is in a period of vigorous development.

In addition to the currently most popular Launchpad and Framework models, future potential directions may include:

1. Agent-driven cryptocurrency exchange: realize intention trading, on-chain data analysis, and intelligent investment advisory, with fully decentralized listing, asset custody, and token issuance processes.

2. Agent-driven stablecoins: An evolved version of algorithmic stablecoins that automatically rebases and maintains its peg through AI.

3. Application of Agentization: Various applications such as games, NFTs, and physical assets integrate Agent services as a core function.

Overall, the era of AgentFi has just begun, and there is still vast room for development in the future.