Study Pudgy Penguins
From Digital Collectibles to Global Brand: The Unstoppable Rise of Pudgy Penguins.
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Disclosure: The author does not currently hold any Pudgy Penguins NFTs or related collections.
Opening scene.
It’s 2024. You walk into a Walmart to do some last minute shopping for your niece’s birthday and you see these cute penguin plushy toys. “These look cute!” you think to yourself, as you grab one and head to the checkout line. On the way there, you check your phone, and your girlfriend has responded to your “gm” text with a cute GIF (pronounced “GIF”, not “JIF”) of a pudgy-looking penguin.
“Wait, this looks familiar,” you say to yourself as you bring the plushy toy you just picked out next to your phone to compare. A jingle starts to play on the LED screen on the wall, catching your attention, “Pudgyyyy, Pudgy Peeeeenguins!” On the screen you see some Fortnight gameplay with the same cute, pudgy penguins being showcased.
End scene.
Did you miss something? When did these darn Pudgy Penguins take over the world?
Despite what the Chinese zodiac might suggest, 2024 is proving to be the year of the Penguin. The Pudgy Penguin collection has achieved the highest cumulative returns since November 2023 among the top five profile picture (PFP) based collections, excluding Bored Ape Yacht Club (BAYC) derivatives like MAYC, according to data from CoinGecko. The returns have soared to over 400%, more than 2.6 times higher than the next top performer, Mad Lads. The Pudgy Penguins are now the third-largest NFT collection by market capitalization, excluding its derivatives, with a floor price of around 20 ETH.
What was the catalyst for this run? Will they continue on to dethrone blue chips Crypto Punks and BAYC? What are they doing that’s different from everyone?
Read on to find out as we dive into this and more in the report.
The Genesis
In June 2021, Pudgy Penguins was brought to life by founders ColeThereum, Mr Tubby, and two others. The collection consists of 8,888 unique non-fungible tokens, each minted on the Ethereum blockchain at a price of 0.03 ETH. The team went on to launch two more sub-collections to raise funds for its roadmap: Pudgy Rods were dropped to holders in August 2021 while Lil Pudgys was launched in December 2021. Lil Pudgys were dropped to each Pudgy Penguins holder and the rest were minted for 0.03 ETH (22,222 total supply). Overall, the team raised around 666 ETH from the two mints, not including royalty fees which researcher s4mmy estimated to be around $1.8 million.
The Meltdown
One might assume that penguins flourish in the cold, yet the winter of 2021 proved to be a harsh season for collection holders. The project began to lose steam as prices retraced. By the end of 2021, the Pudgy Penguins floor had retraced -84.4% from its August 2021 highs of roughly 3.79 ETH to as low as 0.59 ETH. This could be partially attributed to the poor execution of the Pudgy Rods collection and the then newly launched Lil Pudgys, which many saw as a dilutive move, potentially watering down the exclusivity and value of the initial collection.
At the same time, on August 12, 2021, on-chain sleuth zachxbt published a thread divulging the sketchy past of the collection’s founder, Cole. As if to pour salt onto… igloos, an exposé by 9x9x9eth revealed that the founders had no intention of seeing out the promised roadmap, which included a game, token, and other products. Instead, the founding team had been wanting to sell the collection.
The Polar Rebirth
Despite the overhanging drama and founders wanting to abandon ship, the community rallied, with multiple offers coming in to acquire the project. Pudgy Penguins was eventually acquired by Luca Netz for $2.5 million in April 2022, with Netz taking over as CEO. Note that this money went directly to the outgoing founders, who also took all the money raised from the two mints with them.
In May 2023, Pudgy Penguins raised $9m in a seed round led by 1kx with participation from Big Brain Holdings, Kronos Research, among others. This came after Pudgy Penguins had announced that it had signed a deal with WME, one of the top talent agencies globally.
The rest, as they say, is history.
From ‘PFP Collection’ to Global Brand
Since its revival, the Pudgy Penguins collection has evolved from a mere profile picture (PFP) collection into a global brand. Let's take a quick look through their journey.
IP & Brand Development
Perhaps the most important change that the new team made was to position Pudgy Penguins as an “IP and brand development company” — in fact, you’ll see this description being used on their recent press releases.
This move followed in the footsteps of Yuga Labs, who introduced IP management and licensing for the holders of the BAYC collection (Yuga went on to acquire the Crypto Punk and Meebits IP as well).
This all sounds great, but what does it actually mean for a Pudgy Penguin holder?
Under this new direction, Pudgy Penguin holders are granted explicit rights to utilize their NFTs' associated art for both personal and commercial purposes, within the boundaries of the licensing agreement.
For example, a holder could use their Pudgy Penguin as the face of their new clothing line, with the understanding that their gross revenue does not exceed $500,000 annually from these endeavors (if it does, he would have to apply for a broader license). The full licensing agreement can be found here.
Overpass
Pudgy Penguins themselves have also been partnering with major brands and companies, allowing for holders to apply for their NFTs to be used in these initiatives and earn a share of revenue it generates. To facilitate licensing on a larger scale, Pudgy Penguins have partnered with Overpass, an IP licensing platform.
The platform allows for holders to submit their NFTs to be used for branding deals incorporating the Pudgy Rod collection as a multiplier for royalties that holders could earn.
For example, in the latest ‘Pudgy Toys Chapter 2’ proposal, holders had a chance to submit their NFT to be used for the new line of toys. The royalty percentage for this deal was 20% — meaning holders whose NFTs were selected would earn a 20% royalty from sales of the new toy line. Users who also owned Pudgy Rods could boost their earnings based on the multipliers as defined in each proposal.
Pudgy Toys
Pudgy Penguins launched Pudgy Toys, their toy line, in May 2023 via a partnership with PMI, an international toy manufacturer. PMI features brands such as Piñata Smashlings, Stumble Guys, Creature Cases, Gang Beasts, Sonic Prime, among others.
To help scale and distribute their toy line even further, Pudgy Penguins partnered with Retail Monster, a brand extension and licensing company specializing in delivering brands to retail shelves.
These initiatives yielded results — in September 2023, Pudgy Penguins announced a deal with Walmart that would place their plushies and collectibles on the shelves of 2,000 Walmart stores nationwide. Since then, Pudgy Toys have also been placed in Smyths in the UK and Toys R Us in Canada. According to Yahoo! Finance, the Pudgy Toys has generated the brand $10 million in sales and has sold over 750,000 toys in less than a year.
Igloo — Clothing Brand
In August 2023, Pudgy Penguins launched Igloo, a clothing brand. While most NFT collections (including Pudgy Penguins) have merch stores selling clothes plastered with images of their NFTs, Igloo stands apart as a brand that aims to appeal to a wider audience that may not even be familiar with the NFT collection.
Social Media
Unlike most NFT projects, Pudgy Penguins broadened their social media footprint beyond platforms like X and Discord (common platforms within the Web3 community), venturing into Instagram, TikTok, Giphy, as well as utilizing influencer marketing via its creator network.
Instagram & TikTok
According to data from Social Blade, Pudgy Penguins have amassed an impressive following of over 1.6 million across Instagram and TikTok. Their success on these platforms can be largely attributed to their content strategy, which focuses on short-form videos featuring characters from the Pudgy Penguins IP.
Significantly, the content steers clear of overt references to NFTs or cryptocurrencies, opting instead to feature cute, animated characters in universally relatable scenarios. This approach has proven to be a winning formula for virality, appealing to the broader audience without alienating them with niche crypto jargon.
They didn’t stop there...
Pudgy Penguins have also infiltrated the GIF market via GIPHY, reaching just under 15 billion views across all their GIFs. These GIFs have permeated pretty much every social media platform out there — Facebook, Instagram, Snapchat, Tiktok, and even messaging apps like Whatsapp, Telegram, and iMessage.
A key part of their marketing strategy is the utilization of creator networks. Amidst a rise in digital advertising trends, which Statista predicts will constitute 70% of all ad spending by 2024, Pudgy Penguins has adeptly incorporated influencer marketing into their expansive strategy, a method that has proven effectiveness within the digital advertising segment.
The Pudgy Penguins team has leveraged this trend to great effect ($10 million in toy sales and a new Walmart deal), utilizing influencers to penetrate markets and engage target audiences beyond the traditional NFT sphere for its Pudgy Toy line. Notable names you may recognize include: Kai Cenat, David Dobrik, and Harry Jowsey, among others.
Metaverse
In December 2023, Pudgy Penguins announced their entry into the Metaverse with the unveiling of Pudgy World, powered by zkSync Era. Set to launch in Q1 2024, Pudgy World is a digital environment that extends beyond its NFT collection. This inclusive digital universe will welcome Pudgy Toy owners, Pudgy Penguin’s own merchandise collectors, and gamers alike. zkSync Era is an Ethereum L2 powered by zero-knowledge (zk) technology — revisit our report on Aztec for a refresher on zk-rollups!
Pudgy Penguins have also partnered with Snag Solutions to launch an integrated marketplace that includes peer-to-peer trading and a token-gated social platform. The marketplace will also allow users to sign up using emails and enable crosschain trading through LayerZero. This move is important to be able to onboard non-native Web3 users, which again speaks to the inclusiveness of the brand’s strategy.
Analysis
The Trojan Horse
Drawing inspiration from the ancient Greek strategy of the Trojan War, Pudgy Penguins have employed a similar tactic with their brand strategy. Much like the Greeks, who secured victory over Troy through cunning and surprise, Pudgy Penguins have “infiltrated” a broad spectrum of markets. They've cleverly introduced their IP across a diverse range of products, designed to appeal to a wide demographic — this is what sets this collection apart — its emphasis on building not just for the niche Web3 community but for the general populace as well.
This inclusive approach has distinguished Pudgy Penguins from other collections, marking it as a leader in brand development and a marketing masterclass for others to follow. Through strategic product placements and collaborations, they’ve managed to weave their brand into the fabric of everyday life, making the Pudgy Penguins an ubiquitous presence across various consumer touch points.
The Netz Effect
Despite past controversy, the transformative effect that Netz has had on the Pudgy Penguins collection-turned-brand since his takeover is undeniable. His early achievements, from earning his first million before turning 18 to his strategic roles as an investor and CMO of Gel Blasters, underscores his adeptness in marketing and brand development. Yet, the revitalization and success of Pudgy Penguins under his guidance serve as the most compelling testament to his prowess in these areas.
Sustaining the Huddle
Rather than running back the common NFT collection playbook of launching a derivative collection to raise more funds and thus extracting more value from its holders, the Pudgy Penguins team instead put their heads down and went to work on building.
In this interview, Netz shared the initial hurdles of turning the Pudgy Penguins’…igloo around, notably having no treasury to start with — a direct fallout from the original team's departure, who left taking the project's funds with them. Instead of relying on royalties as a revenue model, Netz and the team worked without pay for 11 months, secured a $9m raise, and built various revenue streams through different products and sub-brands.
Redefining IP Licensing & Management
Pudgy Penguins wasn't the first NFT collection to leverage IP licensing and extend commercial rights to its holders. Yuga Labs, with its BAYC collection and subsequent acquisition of the Crypto Punks IP (among others), has set a high benchmark in terms of scale and reach.
Nevertheless, Pudgy Penguins' recent collaboration with Overpass, as previously mentioned, underscores a deliberate move towards amplifying IP licensing and forging partnerships with global brands. Overpass facilitates a streamlined process from deal proposals to asset submissions and royalty payouts. This initiative not only aims at expanding the brand's reach but also at ensuring that holders gain tangible benefits from such collaborations, aligning their success with that of the brand itself.
Airdrops
As has become tradition, protocols typically airdrop a portion of their token supply to users at launch as a reward for user activity and contribution to the development of the protocol. More recently, protocols have begun airdropping tokens to NFT collection holders. For example, Mad Lads holders on Solana were eligible for airdrops from Pyth Network, Dymension, and Wormhole.
The Dymension airdrop was a significant catalyst, as each Pudgy Penguin was eligible for 1,250 DYM tokens — worth more than $10,000 at the peak! This led to a a surge in demand for Pudgy Penguins and its floor price increased shortly after from 15 ETH to 20 ETH.
Final Thoughts
Looking at historical NFT price data, it is clear that Pudgy Penguins and Mad Lads both led the revival of the NFT sector, lifting the rest of the market with their meteoric rise as they established themselves as ‘blue chip’ collections.
However, the question remains: will Pudgy Penguins go on to dethrone Crypto Punks and BAYC? The current market cap places Crypto Punks at $1.7 billion, with BAYC and Pudgy Penguins trailing at $692 million and $523 million, respectively. While the trajectory of Pudgy Penguins suggests a potential shift in the hierarchy, Crypto Punks' legacy as the pioneering NFT collection and BAYC's expansive ecosystem, bolstered by Yuga Labs' strategic acquisitions and a staggering $450 million fundraising at a $2 billion valuation, set high benchmarks.
Pudgy Penguins' evolution into a global brand, characterized by its extensive social brand reach and successful ventures beyond Web3, notably the Pudgy Toy line, indicates a paradigm shift towards a diversified revenue model and a broader appeal transcending typical NFT market demographics. Coupled with their commitment to redistributing value back to the community — moving away from the extractive nature prevalent in many NFT projects — Pudgy Penguins stands out as more than a mere NFT collection. Such an approach illustrates the potential of Pudgy Penguins to become a billion-dollar brand.
I leave you with a quote from Lorenzo Melendez, president of Pudgy Penguins, who was recently interviewed by Blockworks:
“We do have toys, but we’re not a toy company. We will have a game, but we’re not a game company. You know, those are distribution mechanisms for the brand and the ultimate vision is: How can you make this the most popular penguin in the world?”
Study Pudgy Penguins.
References
Pudgy Penguins: The Rise to Blue Chip
Pudgy Penguins secures $9 million months after CEO denied raising money, called notion ‘fake news’
Everything You Need to Know about Pudgy Penguins
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