Decrypt's 2023 NFT Project of the Year: Pudgy Penguins

A brutal Crypto Winter nearly starved the NFT market—most projects couldn’t stand the cold. But there’s one that was seemingly built for the climate. It’s only fitting that it’d be Pudgy Penguins—Decrypt’s NFT project of the year.

Buzz around NFTs froze in mid-2022, and the once-lively space became very chilly indeed. Prices fell, sales collapsed, and the all-important vibes around the NFT world increasingly became frigid as collectors griped and projects saw revenue largely evaporate.

That was true for the vast majority of prominent NFT projects that pumped prior to the bear market. But Pudgy Penguins bucked the trend and only appeared to get stronger amid the brutal crypto collapse—ending the year in front of millions of people at Walmart stores across the country.

That’s in part because the project already went through its toughest times before the so-called winter set in.

“Vibes have always been good in the huddle—but especially now,” Pudgy Penguins owner and CEO Luca Netz told Decrypt. “We're in the winter season. Penguins are ice animals. Things are going well with us.”

Pudgy Penguins launched in 2021 right as the NFT market saw explosive demand, and a prominent New York Times feature helped catapult the profile picture (PFP) project into the spotlight. But as the Bored Apes and other collections gained value and broader interest in early 2022, Pudgy Penguins was mired in controversy, and some holders planned schemes to break away and “wrap” their NFTs to avoid paying royalties to the previous leadership.

In April 2022, just weeks before the bottom fell out of the broader NFT market, Netz—a serial entrepreneur—swooped in and bought the IP from the original creators for $2.5 million. When the market plunged, Netz and team were faced with the harsh reality of building with minimal resources at a time when few people wanted to buy NFTs. It was a blessing in disguise.

“The bear market was tough. But from our perspective, in hindsight, it was actually the best thing that ever happened to us,” Netz recalled. “Because we were really able to focus on the core business, which was to build an IP and not get caught in the rat race that can sometimes be a bull market.”

Netz previously told Decrypt that he treated the Pudgy Penguin like an “influencer,” and that meant getting the cartoonish avatars in front of more eyes.

His team pushed viral content to Instagram, building up a following of more than a million followers—most of whom probably don’t know about the now-$25,000+ NFTs that kick-started and still underpin the brand. Pudgy Penguins also started building a library of thousands of animated GIFs on Giphy, racking up a whopping 11 billion image views to date.

As more and more people became aware of Pudgy Penguins, the vibes returned. Serious NFT collectors started to rock a Penguin as their PFP, praising the collection for being the one of the only projects to actually gain value in the bear market. Pudgy Penguins then raised $9 million in funding, as announced in May, to fuel its next steps.

But Pudgy Penguins was focused on building more than just vibes. As we saw over the past few months, the brand began a major mainstream push around plush dolls and other toys, linking up with mega-retailer Walmart, among others (including Five Below), to get the cute creatures in front of a vastly larger audience.

“It's fulfilling the expectation that we set. We told our community early on that we wanted to create a brand that tens of millions of people know and love,” Netz said. “When you say that, and then you get into Walmart where 180 million people are walking through every single week, it begins to support what we're trying to do.”

He said the plush toys have made a substantial impact in terms of brand awareness, revenue and company sustainability, and helping people form an “emotional attachment” to the Penguins. But they’re not just licensed toys based on IP. Netz and team are growing the Pudgy Penguins IP in a crypto-native way… whether or not buyers realize it.

That’s because the toys all come with a tag containing a QR code, which when scanned grants the buyer free NFT avatar traits minted on the zkSync network. It’s all streamlined and easy to grok; 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 “normies” wandering the Walmart aisles.

“Which NFT would you like to collect?” he said. “The one that your friends, family, peers, and colleagues can enjoy in the physical world without you having to teach them about blockchain or Web3? Or the brand that you have to set up a MetaMask and coach somebody for 30 minutes on why they should spend tens of thousands of dollars on a JPEG?”

“One is a lot more compelling and obvious,” Netz said, “and another has a lot more barriers to entry.”

Netz said that they’re seeing approximately a 20% conversion rate on toy buyers scanning the QR code and claiming the NFTs. He believes they can juice that to 50% by improving the call-to-action on the tag and reframing the packaging around that—and part of making that more appealing is the tie-in to Pudgy World.

Set to launch in Q1 2024, Pudgy World is the online metaverse game that those claimable NFTs are designed for, letting toy owners, original Ethereum NFT owners, and crypto fans alike plug into a colorful world and connect online. Netz says the online world will “close the loop” between the toys and the tokens, all while setting Pudgy Penguins up for the future.

“You buy a toy for $5, sign up, redeem these traits, put it on your Penguin, and then you can play with your friends. I mean, that's a really fun and cool experience,” he said. “And secondly, it gives us a chance to really start taking a crack at Pudgy Penguins becoming a franchise.”

Potential film and TV adaptations remain on the table, Netz said, but an online game was most immediately appealing as a way to enhance the physical toy experience and connect it to the NFT community. Pudgy Penguins has made substantial strides in 2023, but as the crypto world starts to thaw out, Netz is only setting larger expectations.

“Going into the new year,” he said, “how do we scale this thing into the biggest IP brand possible?”

Edited by Guillermo Jimenez