The brutal crypto winter has all but starved the NFT market - most projects couldn’t withstand the cold, but there is one that seems built for the climate. It’s only fitting that Pudgy Penguins is Decrypt’s NFT Project of the Year.
In mid-2022, the enthusiasm surrounding NFTs gradually froze, and the once lively space became very cold indeed, with prices falling, sales plummeting, and the most important atmosphere in the NFT world becoming increasingly cold as collectors complained and project revenues evaporated significantly.
This was true for the vast majority of notable NFT projects prior to the bear market, but Humpty Dumpty Penguin bucked the trend and appeared to emerge stronger amid crypto’s brutal crash — ending the year in front of millions of people at Walmart stores across the country.
This is partly because the project was already going through its toughest period before the so-called winter arrived.
"The atmosphere in the crowd has been great, especially now, we're in the winter, penguins are ice animals, and we're going great," Luca Netz, owner and CEO of the Chunky Penguins, told Decrypt.
Pudgy Penguins launched in 2021, just as demand in the NFT market was exploding, with a notable New York Times feature helping to put the Profile Picture (PFP) project in the spotlight.
But as Bored Apes and other collectibles gained value and wider interest in early 2022, Pudgy Penguins became embroiled in controversy, with some holders planning to disengage and “wrap” their NFTs to avoid paying royalties to former leadership.
In April 2022, just weeks before the broader NFT market hit bottom, serial entrepreneur Netz swooped in and purchased the IP from the original creator for $2.5 million, a blessing in disguise as the market plummeted and Netz and the team were faced with the harsh reality of building with minimal resources and few people willing to buy NFTs.
"The bear market was tough, but from our perspective, in hindsight, it was actually the best thing that ever happened to us."
“Because we were really able to focus on our core business, which was building intellectual property, rather than getting caught up in what can sometimes be a bull market, the rat race,” Netz recalls.
Netz previously told Decrypt that he sees the Humpty Dumpty Penguin as an "influencer," which means getting the cartoon avatar in front of more people's eyes.
His team pushed viral content to Instagram, attracting more than 1 million followers — most of whom probably had no idea about the NFTs, now worth more than $25,000, that launched and still sustain the brand.
Pudgy Penguins has also begun building a library of thousands of animated GIFs on Giphy, with images viewed 11 billion times to date.
As more and more people became aware of the Chunky Penguin, the feeling returned, and serious NFT collectors began to make the penguin their PFP, praising the series as one of the only projects that actually gained value in the bear market.
As announced in May, Pudgy Penguins subsequently raised $9 million in funding to fuel the next steps in its development.
But Chunky Penguin isn’t just focused on creating atmosphere, as we’ve seen over the past few months, the brand has begun a major push into the mainstream with its plush dolls and other toys, partnering with companies like big-box retailer Walmart (including Five Below) to get these adorable creatures in front of a larger audience.
"It delivers on the expectations we set, and we told our community early on that we wanted to create a brand that tens of millions of people know and love."
“When you say that and you walk into a Walmart where 180 million people pass through it every week, it starts to support what we’re trying to do,” Netz said.
He said the plush toys have had a significant impact on brand awareness, revenue and the company's sustainability, and have helped people form an "emotional attachment" to the Penguins.
But these aren’t just licensed toys based on intellectual property, Netz and team are developing the Pudgy Penguins IP in a crypto-native way… whether buyers realize it or not.
That’s because the toys come with a tag containing a QR code that, when scanned, grants the buyer a free NFT avatar feature minted on the zkSync network.
Everything is streamlined and easy to get the hang of, you don’t need to hold crypto or even have a wallet to get started, it’s also purely optional and feels like a bonus, in other words, it’s perfect for the “normal person” wandering through the aisles of Walmart.
“Which NFT would you like to collect?” he said. “One that your friends, family, peers, and colleagues can enjoy in the real world without you having to teach them about blockchain or Web3, or you having to set up a MetaMask and instruct someone for 30 minutes on why they should spend tens of thousands of dollars on a brand of JPEG.”
“One is more visible and more obvious,” Netz said, “and the other has more barriers to entry.”
Netz said they’ve seen a conversion rate of about 20% for toy buyers scanning the QR code and claiming the NFT, and he believes they can increase this to 50% by improving the call to action on the label and redesigning the packaging around it, and the tie-in with Pudgy World is part of making it more appealing.
Pudgy World, set to launch in Q1 2024, is an online metaverse game for which these claimable NFTs are designed, allowing toy owners, original Ethereum NFT owners, and cryptocurrency fans to enter a colorful world and connect online.
Netz said the online world will “close the loop” between toys and tokens while preparing for the future of the Chunky Penguin.
“You buy a toy for $5, register, redeem the features, put it on your penguin, and then you can play with your friends, and I mean, it’s just a really fun and cool experience.”
“Secondly, it gives us a chance to really start experimenting with the Chunky Penguins as a team,” he said.
Netz said potential film and television adaptations are still under consideration, but online gaming holds the most appeal as a way to enhance the physical toy experience and connect it to the NFT community.
Pudgy Penguins has made great strides in 2023, but Netz is only setting even greater expectations as the crypto world begins to thaw.
“Going into the new year,” he said, “how do we scale this thing to the biggest IP brand possible?”
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