AI Agent Track Analysis: Why is there still 10 times rise potential?

Before analyzing the AI Agent track, let's first take a holistic view of the changes that the cryptocurrency industry has experienced during this cycle:

The Divergence of Bitcoin and the Cryptocurrency Market

Before this round of bull market, Bitcoin was almost synonymous with the entire cryptocurrency market. Buying Bitcoin meant buying crypto assets, 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 the mainstream view, from the political sphere to the business world. However, the existential significance of cryptocurrencies, especially Ethereum and other altcoins, has not gained widespread recognition from mainstream society and capital.

The reasons are multifaceted, the primary one being the asset positioning issue:

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.

However, cryptocurrencies like Ethereum are still viewed by traditional financial institutions as tech stocks lacking mature and sustainable business models. Compared to tech giants like Nvidia, Microsoft, and Amazon, which have large user bases and mature products, the valuations of cryptocurrency projects like Ethereum are not low, and their return elasticity is insufficient, making the risk-return profile relatively low from an asset allocation perspective.

From the perspective of the Sharpe ratio, Ethereum is lower than tech companies like Meta and Google. Bitcoin's Sharpe ratio is only second to NVIDIA, which performed strongly in this bull market.

Another important factor is the overall macro environment. The current level of interest rates and the degree of monetary easing still cannot be compared with the large-scale liquidity injection during the last pandemic. Coupled with the booming AI industry, this leads to a lack of appeal for cryptocurrencies to off-market funds. This is easy to understand; if limited funds are directed towards AI stocks and GPUs, it becomes difficult to simultaneously invest in altcoins and Ethereum.

Serious Imbalance Within the Cryptocurrency Ecosystem

Since it is difficult for cryptocurrencies to attract off-market funds, can on-market funds leverage enough purchasing power?

A rough estimate of the current on-site funds ( stablecoin total + contract position ) shows that it has far exceeded the last bull market. However, aside from Bitcoin, most altcoins have not yet reached new highs. Where is the problem?

The root cause lies in a serious imbalance between supply and demand. On the supply side, there are a large number of overvalued new projects, 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 in 2022. Due to ample funds, many funds ignored project quality in a frenzy to complete investment tasks.

So who will provide buy support for these projects? Previously, it mainly relied on centralized exchanges. However, after the FTX incident, centralized exchanges have become a regulatory focus, facing not only the risk of huge fines but also the possibility of founders going to prison. Therefore, the goal of exchanges has shifted from expanding user base and increasing trading volume to obtaining profits.

Exchanges that are user-oriented must inevitably offer benefits, including lowering the valuations of new projects and sharing early project opportunities. Under regulatory pressure, exchanges have scaled back offline expansion and stopped profit-sharing activities such as IEOs. This has led to insufficient momentum for on-site demand and buying.

Unique Advantages of AI Agent Compared to Meme Coins

As we all know, the core application scenarios of cryptocurrency are asset trading and issuance. Only new models that allow users to participate in asset issuance and trading can generate wealth effects in each bull market, which in turn triggers the phenomenon of on-site capital leverage and off-site capital entry.

Under the premise of project valuations being excessively high and a serious imbalance between supply and demand, Meme coins became the first breakthrough. Characterized by no VC financing and fair distribution, Meme coins rapidly surged in value through low market capitalization, creating a wealth effect and driving a new track for asset issuance and trading.

One of the most important features of Meme coins is the lack of practical use. This financial nihilism can deconstruct VC manipulation, but it suits only a very small number of cryptocurrency users. For most practitioners and institutions, the difficulty of participation is too great. It is hard to imagine explaining to fund LPs the investment in a project simply because "it’s too cute."

The AI Agent can consolidate the consensus of the majority: it can tell the story of investing in AI infrastructure to fund LPs; it can explain the on-chain Meme logic to Meme enthusiasts; and it can articulate the rationale for investing in AI Agent track projects to ordinary practitioners and VCs.

In conclusion, the AI Agent is the greatest common divisor of the Web3 industry in this cycle.

How to View AI Agent Projects

For most cryptocurrency practitioners and investment institutions, it is crucial to understand how AI Agents are reshaping the cryptocurrency industry's supply chain and valuation logic.

After the previous two rounds of bull markets, the industrial chain and valuation logic of blockchain projects have gradually taken shape:

• Layer 1 public chain: The market cap ceiling is Ethereum, currently around $400 billion; the second place Solana is about 1/4 of Ethereum, and may reach 1/3 or even 1/2 in the future.
• Middle layer: Such as the oracle Chainlink, with a fully circulating market value of approximately $20 billion, accounting for 5% of Ethereum.
• Basic protocols like DeFi: Uniswap's FDV market cap is $13 billion, AAVE is about $5 billion, accounting for 3% and 1.25% of Ethereum, respectively.

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

Now that AI has been incorporated into the underlying technology stack of blockchain, the AI layer has become a parallel technology layer alongside smart contracts, known as the full-chain Agent layer.

Based on this logic regarding valuation: if the leading DeFi middleware Chainlink can capture 5% of Ethereum's market capitalization, a similar framework for AI Agents could also potentially reach 5%. Currently, ai16z has a market cap of about 2.5 billion USD, leaving an 8-10x growth potential.

A launch platform like Virtual, which comes with its own framework, is equivalent to Chainlink + Uniswap, the latter currently valued at 33 billion USD. With Virtual estimated at 5 billion USD, there is still 6 times the potential.

Freysai(FAI) is similar to AAVE, with extremely high product quality. The verifiable applications of AI TEE will also become standard in future AgentApps, with a market cap ceiling of 1.25%-3% of Ethereum, corresponding to 5-10 billion USD.

Other leading projects such as Spore are comparable to algorithmic stablecoins or Launchpad from the previous cycle, and aixbt is comparable to DeFi aggregators like 1inch, with a lower limit of a $1 billion valuation, and an upper limit depending on market developments.

How AI Agents Change the Involution Ecology of Cryptocurrency

This round cycle started with Meme, and the wealth effect almost all occurred on-chain. However, the on-chain Meme has a high threshold for external users and institutions, and most users still prefer to trade on exchanges.

The biggest advantage of AgentApp lies in interaction:

Buy assets:

• Previously: Buy coins by depositing orders through centralized exchange apps and websites.
• Agent Era: Buy coins directly using natural language, and even smartly assist in trading and investment decisions.

financing:

• Past: Conceptualizing ideas, building a team, packaging the project, seeking VC funding, increasing valuation
• Agent Era: Directly release on GitHub and products, spread to the community, community directly invests

Token issuance:

• Past: Launch testnet, announce financing information, attract users to testnet, negotiate with exchanges, issue tokens to recover funds
• Agent Era: AI automatic token issuance, Agent controls private keys, manages the fund pool, and conducts community marketing independently.

The entire loop follows several important criteria:

• Project is open source, applications are visible, and code can be verified.
• Funds are relatively safe, with private keys controlled by the Agent to prevent developers from withdrawing the pool.
• Transparency in financing and token issuance to avoid issues such as insider trading on exchanges and opaque airdrop rules.

Of course, the issuance of tokens by agents also faces issues such as on-chain front-running and advantages in KOL information, but there has been significant progress compared to the past black-box operations.

The AgentApp, which can win user trading entry, is very likely to benchmark the valuation of exchange platform tokens.

AI Agent Development Stages

According to the data, the total market capitalization of AI Agent is approximately $18.6 billion, which is about 64% of the total market capitalization of DeFi projects at $29 billion, 75% of the GameFi track at $24.6 billion, and 62% of the total market capitalization of all Layer 2 at $30 billion.

Although the market capitalization statistics are rough, according to market sentiment, AI Agent has just crossed the halfway point and is in its prime.

The possibility of future speculation focuses on:

• Agent-driven cryptocurrency exchanges: including intent trading, on-chain data analysis, and smart investment advisory, achieving decentralized listing, asset custody, token issuance, and more. Different types of exchanges may vary in the degree of Agent involvement in investment decision-making, risk preferences, and other aspects.

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

• Application Agentization: Similar to tokenization, integrating Agent services into the core functions of various applications, such as games, NFTs, physical assets, etc. The bubble formed by excessive Agentization can also be seen as a top signal, such as when every chain begins to develop AI Agents.

In conclusion, the era of AgentFi has just begun.