Phala Network: Capturing Spillover Value in AI Agent Token Issuance

Frontier Lab
8 min readJan 6, 2025

--

Introduction

With the launch of ChatGPT by OpenAI, artificial intelligence technology has achieved a breakthrough transformation from concept to application. By the end of 2023, the integration of AI and the cryptocurrency market began to take shape, showcasing strong synergy with niche sectors like DePIN, Rollup, and Meme. This culminated in 2024, with AI establishing its dominant position in the cryptocurrency market.

Looking at the developmental cycles of the cryptocurrency market, innovative asset issuance mechanisms have often served as crucial catalysts for market uptrends. From ICOs and IEOs to INOs, IDOs, and inscription minting, each novel issuance method has driven a reevaluation of market valuations. Against this backdrop, the autonomous token issuance mechanism of AI Agents, as an emerging paradigm, has garnered significant market attention.

Current Status of AI Agents

Market Performance Overview

The cryptocurrency market has recently undergone an overall correction, with mainstream assets experiencing notable pullbacks. Data shows that benchmark assets like BTC and ETH have declined by over 10%. However, amid this backdrop, the AI Agent sector has demonstrated remarkable resilience, particularly among projects related to the AI Agent token issuance ecosystem. Representative projects like AI16Z and PHA have seen price increases exceeding 100%, showcasing robust market momentum.

Core Drivers Behind the Rise of the AI Agent Sector

The market’s favorability towards the AI Agent sector stems from four key paradigm shifts in the cryptocurrency space:

  1. Shift in Development StrategiesTraditional crypto projects often adopt an “infrastructure-first” development approach, which is characterized by long development cycles, high risks, and low demand alignment. In contrast, AI Agents leverage an “application-first” strategy, validating technological foundations through practical operations. This significantly enhances project deployment efficiency.
  2. Innovation in Financing ModelsThe market is transitioning from VC-dominated financing to community-driven and meme-oriented financing models. These new models effectively enhance project transparency and community engagement through mechanisms such as: Open-source project management Direct access to secondary markets Participation in community governance
  3. Optimization of TokenomicsToken distribution mechanisms have evolved from singular airdrop-based incentives to collaborative, co-building incentive systems. This shift effectively: Suppresses short-term speculative behaviors Strengthens long-term value creation Enhances ecosystem stability
  4. Reconstruction of Liquidity EcosystemsDecentralized exchanges (DEXs) are gradually replacing centralized exchanges (CEXs) as the core hubs of market liquidity. This shift provides emerging projects with a more open and efficient development environment.

Market Impact Assessment

The innovative development of AI Agents aligns closely with the transformative trends of the current cryptocurrency market. Breakthroughs in technological innovation, business models, and governance mechanisms have garnered widespread recognition from both investors and users. This trend is expected to continue driving the revaluation of related projects.

AI Agent Autonomous Token Issuance

At the beginning of 2024, the cryptocurrency market witnessed a paradigm shift from the “KOL-led token issuance model” to “AI Agent autonomous issuance.” This transformation was inspired by the success of the Meme token market but has achieved qualitative leaps in technological implementation and governance mechanisms.

The concept of “funding AI Agents to issue assets” is driven by the AI Pool, which adopts an innovative asset issuance framework:

  • Participation Method: Users send assets to an AI Agent’s designated wallet address.
  • Security Assurance: Private keys are generated by a TEE (Trusted Execution Environment).
  • Liquidity Management: Automated DEX liquidity pool creation.
  • Fund Allocation: Intelligent token distribution and fee management.

Compared to the traditional KOL token issuance model, the new mechanism offers the following advantages:

  • Autonomy: AI Agents fully control private key management.
  • Security: Eliminates risks of human interference.
  • Intelligence: Automates parameter configurations (whitelisting, unlocking mechanisms, pricing, etc.).
  • Risk Management: Reduces MEV arbitrage risks through oracle technology.

Currently, there are two modes of AI Agent autonomous token issuance: Virtuals and ai16z. Virtuals and ai16z represent two distinct developmental paths within the AI Agent sector.

Virtuals adopts a closed ecosystem strategy, creating standardized frameworks and token economic models to establish a robust internal growth flywheel. The growth in token demand is positively correlated with ecosystem expansion. However, technical homogenization could become a bottleneck for further breakthroughs.

ai16z, on the other hand, focuses more on an open developer ecosystem. While it may appear somewhat fragmented in the short term due to the absence of a systematic token economic model, it relies on technological enablement and community-driven growth, offering tremendous potential.

The core of Virtuals lies in serving as an asset launch platform, building advantages through efficient ecosystem collaboration. ai16z, leveraging innovative achievements like the ElizaOS framework and MetaV, gradually unlocks its technological potential. In the future, with the integration of a comprehensive tokenomics model, ai16z is expected to drive a more significant ecosystem leap.

Overall Comparison:

  • Virtuals tends to provide clear growth opportunities.
  • ai16z opens up a more imaginative development space.

The Success of ai16z

The current Crypto market’s AI Agent sector exhibits a “one dominant, many strong” competitive landscape. The market leader, Eliza (AI16Z), commands a 60% market share, with a market capitalization climbing to $1.4 billion. The other three major frameworks — G.A.M.E (Virtuals, 20% market share), Rig (ARC, 15% market share), and ZerePy (ZEREBRO, 5% market share) — occupy niche segments with their unique features. Notably, Eliza’s sustained high activity on GitHub and growing developer support further solidify its position as an industry leader.

ai16z’s market dominance is largely attributed to its innovative application of TEE (Trusted Execution Environment) technology. Through deep collaboration with Phala Network, ai16z successfully integrated TEE technology into its ELIZA framework, a strategic move that has made it the most influential commercial IP in the AI Agent sector. Particularly with the release of ELIZA V2, significant advancements were achieved in unified Agent wallet management, messaging systems, and scalability capabilities based on TEE technology, further widening its technical lead over competitors.

The Eliza developer community’s continuous innovation in TEE applications has been a key driver of ai16z’s sustained leadership. Its recently launched TEE Verifiable Terminal not only addresses core challenges in the AI-Pool token issuance model but also introduces on-chain verifiability and transparency, creating a more trustworthy decentralized ecosystem.

The terminal ensures the reliability of log data through signature mechanisms, providing users with a blockchain explorer-like intuitive experience. Additionally, its advancements in TEE technology, on-chain data availability, and multi-AI Agent collaborative management demonstrate the potential for deep integration between AI Agents and blockchain technology.

These innovations not only address shortcomings in existing models but also establish ai16z’s position as a technological leader in the AI Agent market.

Phala Network’s Success in AI Agents

Phala Network, an innovative privacy computing infrastructure built on the Polkadot ecosystem, demonstrates its core value in three main aspects:

  1. Robust Privacy Protection System: Phala integrates Trusted Execution Environment (TEE) technology, cloud computing services, and a cross-chain data confidentiality layer, forming a powerful privacy protection framework.
  2. Evolution Toward Web3 AI Execution: By introducing AI co-processors, Phala has transitioned from traditional privacy computing to a Web3 AI execution layer, enabling the deployment of AI agent contracts and access to leading large language models (LLMs), all under the control of smart contracts.
  3. TEE Implementation with Intel SGX: On the technical level, Phala employs Intel’s Software Guard Extensions (SGX) to realize TEE functionality. This implementation ensures complete isolation between node code execution and the main operating system, making it impervious to malicious tampering or data breaches, even by operators with physical access.

Compared to traditional Zero-Knowledge Proofs (ZKPs), Phala’s TEE implementation offers not only data confidentiality and integrity but also the ability to handle complex computational tasks. By offloading smart contract execution to TEE-supported off-chain secure workers, Phala ensures secure data processing while fully utilizing the computational capabilities of individual workers, effectively mitigating risks of data leaks or tampering. This design establishes Phala Network as a comprehensive solution for privacy protection and AI computation.

Revolutionizing Token Issuance with TEE

In the Web3 space, traditional KOL-driven token issuance models have revealed numerous issues, such as rug pulls and inequitable token distributions, leading to trust crises. The AI-Pool project, by introducing TEE technology, has pioneered a new “AI Agent autonomous” token issuance model, which has quickly gained market recognition. TEE’s integration not only resolves trust issues but also provides robust security for the operation of AI Agents, with its significance reflected in three key dimensions:

  1. Security Assurance: Provides a “usable yet invisible” private key management mechanism. Establishes isolated execution environments to prevent unauthorized access. Ensures data and computational processes remain secure even under attack.
  2. Privacy Protection: Safeguards the security of user privacy data processed by AI Agents. Protects the intellectual property of AI models against theft. Prevents reverse-engineering attacks on models.
  3. Decentralization Support: Enables secure operation on untrusted nodes. Facilitates the decentralized deployment of AI systems with remote attestation for code and data integrity.

This TEE-based architecture not only resolves trust issues in traditional token issuance but also lays a solid technical foundation for Web3 AI applications. It enables the realization of “trustworthy yet uncontrollable” autonomous AI Agents, marking a significant innovation in digital asset issuance.

Phala Network’s Industry Leadership

Phala Network’s leadership in TEE technology has recently garnered significant recognition, especially following its adoption by the flagship AI Agent project ai16z. This strategic collaboration highlights:

  • Proven Reliability: Phala’s TEE solutions have been tested and validated across multiple mature commercial scenarios.
  • First-Mover Advantage: Phala has established itself as a foundational infrastructure provider in the rapidly growing trend of autonomous token issuance by AI Agents.

By providing secure enclave environments for private key management and signature applications, Phala addresses the challenges of trust and security in decentralized AI Agent operations. Its unique on-chain verifiable consensus mechanism establishes a robust foundation for large-scale commercial applications in the future.

As the trend of AI Agent-driven token issuance expands, Phala’s private key management and remote attestation services are set to become industry standards. Its dual breakthroughs in technical innovation and commercial adoption are attracting more project teams to choose Phala as their foundational infrastructure. This growing market recognition underscores Phala Network’s pivotal role in driving the integration of AI Agents with blockchain technology, paving the way for transformative opportunities across the entire industry.

Conclusion

Amid the wave of deep integration between AI and Crypto, Phala Network has successfully captured value in the AI Agent token issuance domain through its robust TEE-based infrastructure. As a core provider of industry infrastructure, Phala Network’s strategic collaboration with ai16z, a leading enterprise in the AI Agent sector, not only validated its technological feasibility but also established its dominant position in the AI Agent token issuance space, generating significant spillover effects.

From a value capture perspective, Phala Network has constructed a dual-layer value acquisition model:

  1. Direct Value Layer: By offering essential technical services, such as “usable yet invisible” private key management, Phala secures infrastructure service revenue.
  2. Indirect Value Layer: Through the design of its native PHA token mechanism, Phala continually captures the overall growth value of the AI Agent token issuance ecosystem.

As the AI Agent token issuance model evolves and its application scenarios deepen, Phala Network’s value capture capabilities as a foundational infrastructure will further strengthen. By ensuring the security and trustworthiness of AI Agent token issuance, Phala is simultaneously expanding its value acquisition boundaries, underscoring its pivotal role and advantage in this wave of innovation.

--

--

Frontier Lab
Frontier Lab

Written by Frontier Lab

Improve the credibility of the crypto market.

No responses yet