Virtuals Protocol opens large-scale repurchase, where is the valuation ceiling?

Author: Ismay

On January 16th, Virtuals announced that it will use the 12,990,427.85 $VIRTUAL obtained through post-bonding trading revenue to repurchase and destroy related proxy tokens within the ecosystem based on Time-Weighted Average Price (TWAP) in the next 30 days. Tokens such as GAME, CANVO, AIXBT, which have the highest repurchase quantity, have all increased by more than 20%.

At the same time, Virtuals has made updates to the value accumulation mechanism, with the main changes including:

Later-stage pledge tax distribution: 30% allocated to Agent Creators, 20% allocated to Agent Affiliates, and 50% belongs to the Agent subDAO as a fund reserve for future governance decisions;

Creator rewards claim method: Rewards will be sent directly to the wallet of the agent deployer.

Agent Affiliates Mechanism: For various trading platforms or interfaces (such as Telegram Bot) and Virtuals ecosystem, revenue sharing is realized. After the platform becomes an agent affiliate, it will receive 20% of the later staking tax generated by the facilitated transactions to encourage its community and subsequent project planning.

Why is there this upgrade and its impact

Each Virtual token will create a liquidity pool with $VIRTUAL as the paired asset (e.g., AIXBT/VIRTUAL). The platform accumulates a significant amount of $VIRTUAL as revenue through transaction fees.

However, these revenues cannot be directly disposed of, otherwise it may cause market panic and disrupt the ecosystem, as a decline in the price of $VIRTUAL would also affect the proxy tokens linked to it. In addition, if this fund is not handled properly, the platform may face a huge tax burden due to this unusable revenue.

Therefore, the platform chooses to use this part of the income by repurchasing and destroying the ecological tokens.

Two types of tokens with benefits

1. Transaction fees are relatively higher for tokens with higher market value.

The repurchase amount depends on the cumulative amount of transaction fees, so tokens with larger overall trading volume but relatively lower market value will receive a greater proportion of incentives,

Tokens like MISATO, for example, have skyrocketed due to buyback news.

2. Most of the liquidity is in tokens outside of the VIRTUAL trading pool.

The pricing unit (VIRTUAL) of such tokens is less affected by the thrown pressure, but still has the incentive of repurchase. For example, $AIXBT actually received incentives of about 2.5 million US dollars, but because its main liquidity is in other pools, it is less affected by VIRTUAL throwing pressure.

Damaged group

1. $VIRTUAL holders

The sales amount of $48 million is quite substantial. Previously, the price of $VIRTUAL benefited from the continuous accumulation of transaction fees (equivalent to a value deposition of $48 million).

However, these fees will now be converted into cBTC, beginning to exert selling pressure on the market. The positive cycle that drove the rise of $VIRTUAL has now turned into a negative cycle.

2. Only tokens with VIRTUAL pairs or low trading volume

These tokens receive less incentives but have to bear the price pressure from the sell-off of $VIRTUAL. The impact is particularly severe for newly issued tokens, as they have accumulated less transaction fee income.

Blockchain analyst hitesh.eth analyzed the top 50 tokens based on 30-day time-weighted average price (TWAP) for buyback and burn distribution, and found that some tokens are experiencing buyback pressure that exceeds their current market value.

How does the community view this buyback?

It can be said that this upgrade has brought stronger value support to the Virtuals ecosystem, but the community has expressed disagreement about the updated buyback and distribution model, and there are opinions on why Virtuals chose to sell $VIRTUAL instead of directly burning these tokens. "This is contrary to the best interests of the holders and the team, which actively created $48 million of selling pressure. For the ecosystem, some of the incentives flow to proxy tokens, where liquidity is primarily external, causing money to flow out of the ecosystem.

KOL Liam said that although Virtuals converting transaction fees into cBTC is the right direction for transformation, the platform should significantly reduce the transaction fees to reduce excessive extraction from the ecosystem. At the same time, the distribution of transaction fees should be standardized according to the token's listing time, allowing new and old tokens to start from a fair starting point.

However, the view that these buybacks will bring huge selling pressure has also been questioned as untrue because these Agent tokens are paired with $VIRTUAL and buying Agent tokens with $VIRTUAL does not sell any $VIRTUAL, but adds $VIRTUAL to the liquidity pool. If the liquidity pool is priced in WETH, $VIRTUAL will be exchanged for WETH first, but this is not the case this time.

However, this will indeed bring indirect selling pressure, as the amount of $VIRTUAL in the liquidity pool increases, the value of the token will increase, and holders may sell more $VIRTUAL as a result. However, due to the characteristics of the liquidity pool and price impact, and the low liquidity of many of these tokens, they cannot directly sell all tokens.

Leftcurve DAO member mcSleuth believes that this announcement will not bring direct selling pressure, and the indirect selling pressure can be almost negligible, especially considering that the market value of $VIRTUAL is 3.6 billion US dollars and highly liquid.

(The above content is excerpted and reproduced with authorization from our partner PANews. Original link | Source: BlockBeats)

Statement: The article represents only the author's personal viewpoints and does not represent the perspectives and positions of Gate.io. All content and viewpoints are for reference only and do not constitute investment advice. Investors should make their own decisions and trades, and Gate.io and the author will not bear any responsibility for direct or indirect losses incurred by investors in their trades.

<Virtuals Protocol launches large-scale repurchase, where is the valuation ceiling?> This article was first published in Blocklike.