Pseudogenes, gene copies presumed nonfunctional, are widespread products of genome evolution, yet their retention under selection and functional significance across vertebrate diversity remain poorly understood. Here, by analyzing 244 high-quality, chromosome-scale genomes from the Vertebrate Genomes Project spanning seven major vertebrate lineages, we show that the most abundant class of pseudogenes, processed pseudogenes (retrocopies), is a dynamic substrate for evolutionary innovation rather than an inert relic. Retrocopy abundance varies by more than an order of magnitude across lineages, closely tracks autonomous retrotransposon content, and a considerable fraction retains intact open reading frames under purifying selection. We establish a two-stage model in which a conserved formation bias toward highly expressed housekeeping genes is followed by lineage-specific selective filtering that shapes distinct functional repertoires. Testing this model, we show that the mammalian X chromosome exports retrocopies to autosomes at significantly elevated rates enriched for functionally constrained copies, establishing meiotic sex chromosome inactivation as the selective driver. Furthermore, tumor suppressor gene retrocopies accumulate preferentially over oncogene retrocopies in large-bodied and long-lived mammalian lineages, identifying retrocopy-mediated tumor suppressor dosage expansion as a previously unrecognized genomic correlate of Peto's paradox. Beyond cancer-related dynamics, retrocopy abundance itself correlates with key mammalian life-history traits, including brain mass, generation length, and reproductive timing, which suggests that retrocopy turnover is broadly coupled to organismal pace-of-life. These findings recast retrocopies as a major axis of vertebrate genome evolution and provide a comprehensive resource for studying gene duplicate innovation.
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