Hello frens. Thanks for being a reader.
Today I'm publishing a slightly different piece of content: my thesis for why I'm bullish on Pudgy Penguins (and the evolving ecosystem) as a next-gen entertainment franchise.
In other news I'll be taking some time off in July. There will be fewer posts. When I return I'll be relaunching this space under a new brand, and already have some really exciting plans cooking for the fall season. Exciting!
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The '21-22 NFT bull run was a wild time. In retrospect, we came out of it with a few key learnings:
1) NFTs can be an efficient capital formation mechanism
2) building an IP franchise is difficult*
*it requires more than an airy roadmap and limited execution skills
Enter Pudgy Penguins.
Luca and his team understand the mechanics of building a sustainable franchise business. The story's been told many times, so I'm not gonna tell it here, but rather assume you're familiar with the basics.
To be successful in building an IP business, you need a few things:
- characters consumers can love
- an attention funnel that grows over time
- a participation model for consumers to traverse
Pudgy Penguins borrows the best practices from great, existing franchises to create this scaffolding.
The Disney playbook for cute characters and merchandising.
Mr. Beast (in my opinion, the "Disney franchise" equivalent of the social media age): social, viral content as an attention top-of-funnel.
They've also crafted an attractive participation model (from toys to premium digital assets).
The announced mobile game and the expanding retail partnerships, incl. Walmart (execution skills), along their rapidly growing web2 social presence is the most potent attention engine in the NFT space.
Future Catalysts
Two things to pull forward:
- L2, the onchain amusement park
- Hollywood’s pickle
The L2 (onchain amusement park)
Pudgy recently announced their ecosystem holding company, Igloo + the acquisition of Framer to build out their own consumer L2. The ambition can be described as that of building an onchain amusement park.
As more and more consumer crypto experiences emerge, they will separate into two categories.
- Planets: strong enough gravitational field to vertically integrate and build an ecosystem
- Moons: benefit from being within the gravitational field of a thriving planet
Pudgy Penguins is well on it’s way to become a planet. It can use the gravitational force (attention) to seed "in-house moons" (new IP). Even more interesting if they can also create an ecosystem that attracts outside moons to their gravitational field.
But, there’s another interesting catalyst, too.
Hollywood’s pickle: 🥒
The traditional entertainment industry is in a state of deep soul searching. IP franchises have driven the success of on-screen entertainment for decades. But, most of the big franchises are over-mature.
Creating and launching new IP is a high-risk activity (creating another Marvel sequel is the Hollywood equivalent to "Nobody every got fired for buying an IBM").
Hollywood is dependent on IP (compounding attention), but it needs fresh IP that resonates with the most attractive audience segment: younger consumers.
You know what's a great solution? Existing IP with an established connection to a fanbase (de-risking). When Hollywood is done buying rights to the 2010-20 era game catalog, they'll turn their attention to the next thing.
In summary, it's refreshing to see someone execute this playbook, building out a franchise with community ownership as the core and ultimate level of participation.
I have conviction that Igloo/Pudgy will be successful, but also create a path for future onchain cultural phenomenons to proliferate and thrive.
Here I'll stray even further from our regular programming, and explore the best way to gain exposure to the ecosystem. This is, of course, not financial advice. Do your own research. Disclaimer, I have acquired Lil Pudgys assets very recently.
The most attractive exposure would obv. be at the holding company level. But, there's no token for Igloo. Instead, we can get exposure to the ecosystem via the NFT assets.
Think of owning Pudgy assets as investing in the value of attention flows to the ecosystem.
It’s intangible brand equity made tangible via tokenization.
For reference, Disney carries $60B of intangibles on its balance sheet. How big can Pudgy universe grow? 10% 20%? More?
Let’s play with numbers on the lower end of scale: 10%.
10% would imply a $6B marketcap on the intangible assets.
Based on Pudgy/Lil Pudgy distribution this would be a ≈110eth floor for Pudgys and ≈4.25eth floor for Lil Pudgys.
Why do I favor Lil Pudgys? A few reasons:
- lower floor -> more liquidity
- as floor price increase, more people will be priced out of the main collection. I think this drives demand downstream to the secondary collection, and will reduce the price delta between the two.
NFA DYOR of course, but I’m bullish.
Have a wonderful summer, and see you soon!
