The Velvet Worm of the Phylum Onychophora.
The phylum Onychophora is a small phylum consisting of strange, caterpillar-like invertebrates that share traits with both arthropods and annelids (worms).
The Onychophora first showed up in the Burgess Shale as a fossil called "Hallucigenia Sparsa
Velvet worms, also known as walking worms or peripatus, are neither made of velvet nor are they actual worms. They are long-bodied invertebrates, roughly 0.6-5.9 in (1.5-15 cm) in length, and while they may resemble worms they have several features not present in any annelid. For example, they have between 14-43 pairs of "legs" known as lobopods, much like the false legs of a caterpillar. However, unlike caterpillars, or any other arthropod for that matter, velvet worms lack a chitinous exoskeleton. Instead, their body is covered with a thin, flexible cuticle that is not water resistant. This skin is usually blue, orange, green, black, or white in colour, and is covered with scaly tubercles and sensory hairs. These sensory hairs give the velvety appearance and hence the name.
Also called Peripatus, the Velvet Worm is an invertebrate with a soft body (15-150 mm/0.5-5.9 in in length), velvety skin and paired unsegmented legs. They are found in leaf-litter in rainforests in Africa, Australia, Indonesia, Malaysia, and South America, and feed on small invertebrates.
They are unlike any other invertebrates and so the 200 species occupy their own phylum, Onychophora. Velvet worms date back 400 million years and may be a 'missing link' between the arthropods (insects and crustaceans) and annelids (soft-bodied segmented worms, including earthworms). The 20-40 million-year-old fossils of two new kinds of velvet worm were discovered by US palaeontologists in 1996.