Building a Global Brand Through NFTs: The Pudgy Penguins IP

Recorded in the Hodl Up studio, with Chef joining remotely.

Hodl Up: How's it going?

Hodl Up: Going well. I have a fever, I'm sick, but going well. I'm always happy to exist and live this beautiful life.

Hodl Up: You should be happy, and not just because you made your first successful trade on Flash Trade. I was there. I couldn't believe my eyes. Congrats.

Hodl Up: You just jinxed me. I'm 100% sure I'm going to lose that money. But still, thank you very much.

Hodl Up: We should have an intervention and stop doing the handshakes.

Hodl Up: Yeah, that's mid, because you just said you have a cold or a fever or whatever, and you're passing it on to me.

Hodl Up: We drink from the same bottle, man.

Hodl Up: No, we don't.

Hodl Up: But still, you should be happy about it.

Hodl Up: I'm happy. I made money. If I keep trading on Flash Trade, having successful trades, and staking my earnings in FAF, I'll probably be able to afford a Pudgy Penguin really soon.

Hodl Up: And that's what I wanted to get into, because there are a lot of reasons to be happy today. First of all, it's Friday. You were sick, you made some money, and we have Pudgy Penguins joining us today. The CCO of Pudgy Penguins is joining us on this podcast, and it feels like a full-circle moment for me, because this is one community I can really get behind. For some reason, I like penguins.

Hodl Up: You used to play Club Penguin. That's one of the main reasons, I'm 100% sure, because I remember back in elementary school you talked about Club Penguin like it was something out of this world. I hated the game and you loved it.

Hodl Up: You didn't see the vision.

Hodl Up: That's probably why I didn't like the game. I was playing Minecraft, for God's sake. So, we have Chef today, guys, the mastermind and the creative. By the way, did you know that CCO means chief creative officer?

Hodl Up: What? It depends on what the company is about, because...

Hodl Up: No, no, no. Chief creative officer.

Hodl Up: I've never heard of that. There's chief compliance officer, chief commercial officer, chief communications officer, whatever.

Hodl Up: But we're talking about one of the most creative brands out there, so CCO has to stand for chief creative officer.

Hodl Up: Bro, I've had friends send me TikToks of Pengu doing weird stuff that went viral, and they don't even know about the NFT collection.

Hodl Up: Right. They don't even know about crypto as an industry, or how big it is. Keep that in mind, and let's go ask some questions. Let's hop on the call.

Hodl Up: Hello, Chef. Welcome to Hodl Up. Thank you for joining us today.

Peter Lobanov (Chef): Thank you for having me, boys.

Hodl Up: Always. We love builders, so everyone who's building in the space is always welcome. Before we get into the details, I really want to know your origin story: what you did before crypto, how you joined crypto, and then we'll go from there.

Chef: I actually got into crypto in 2017. I started buying Ethereum relatively early; that was my first exposure. My second exposure was Chainlink, so I was a LINK marine without even knowing what a LINK marine was. I was just trading with a lot of size. I had a really good return on Ethereum. I was averaging around $280, so I put a massive bag into Ethereum, rode it all the way up to 3,600, exited my entire position, and then rolled that over. That was basically all my exposure there. I held on to my Chainlink for a while. That's all I did in crypto until my exposure to Pudgy Penguins, and everything from there is kind of history.

Hodl Up: Speaking of Pudgy Penguins, you've basically become the face of crypto nowadays. How did that come about? Can you tell us what it was like to take over from the previous founders, what challenges you faced, and walk us through the story?

Chef: The origin story of how we came to Pudgy Penguins: Luca and I are basically childhood best friends. I've known him since I was 13. We had a few different ventures together. We built e-commerce brands for a lot of influencers, the likes of Jake Paul, Jay Alvarrez, Lil Pump, Supreme Patty, and so on. Then I drifted off into my own space. I started my own creative agency, building a lot of CPG brands and helping with growth. Then Luca and I got into a project together. We invested in a CPG brand called Gel Blasters. It's almost like a Nerf gun, somewhere between a paintball gun and a Nerf gun. They shoot these Orbeez that explode on impact, which was a really awesome product. I came in and handled growth. I rebranded the company and helped scale the business's social presence, everything from optimizing the website to media buying to content. Luca jumped on as the CMO, handling the high-level initiatives. We also invested, so we came into that company with a bit of size.

During our Gel Blaster days, while I was running the agency and serving a bunch of different companies, we flew out to Austin, Texas, and Luca was looking at these JPEGs, and a bunch of guys were starting to trade this stuff. I looked at the computer and said, "Why are you spending hundreds, thousands of dollars on penguins?" That was the first NFT I ever laid eyes on, ironically. And Luca was super passionate about it. He said, "I don't know what it is." This was during the Mutant mint as well, so there was a huge mania going on. I was still very skeptical of the NFT space and didn't fully grasp the concept, the community behind it, or the trading logic of buying and selling these. You could call me a Web2 newbie. I had my roots in crypto, but I didn't understand how that translated to the NFT space.

Shortly after, a few months later, Luca gave me a call: "Hey, I'm thinking about buying Pudgy Penguins. Do you want to come in with me?" So I, along with a few other awesome people, Lorenzo, Vedant, and a few others, came in and acquired the project. I was very creative and had my own creative agency, and he needed someone to be the face of, and spearhead, the creative side of the business. So it was a natural fit, a natural assumption that a creative person would oversee a lot of the creative initiatives.

From there we just built the business. Initially our whole model was around royalties. Royalties were great. If the project generated X amount in trading, we'd get a nice little 5% of that, so it would have been a very sustainable business. That was the entire business model: there could be a passive engine here if we acquired it. So we went in with both feet. Then, shortly after, the entire royalty model collapsed, which made us look at the business through a different lens: "All right, we have this amazing, high-potential IP. What can we do with it?" So we tapped into our CPG roots. "How do we take this from a very digital-oriented business to physical?" We went into toys, licensing them directly from holders. And we turned on our content engine. We knew we needed some form of distribution, because we didn't have the resources to launch our own TV show or build a game. Those are multi-million-dollar projects, and we were already two and a half million bucks into this thing without any sufficient return on investment. So we asked, "What can we do as a scrappy team of entrepreneurs? Peter, what can you do from the creative side?" I have the agency; I have the capacity to turn on content production. We did that for six to 12 months. It was a lot of testing and trying things out, a lot of community validation, and eventually we found our rhythm, which put us on the trajectory we've been on since. It's been a very interesting ride with a lot of uncertainty, but we found our groove, and thankfully we're here now.

Hodl Up: Did you plan all of this expansion out beforehand, from physical products to everything you have now in terms of IP? Did you anticipate it being this massive, or did it come naturally, one thing at a time?

Chef: Hell no. We didn't anticipate anything, man. It was just a lot of figuring things out. I'd be lying if I said we had it all figured out. We really didn't. As entrepreneurs, you have to pivot relatively quickly. It's about testing and getting to failure as quickly as possible, and we did that on multiple occasions. With the Instagram account, we started with one strategy, which was a lot of positive affirmations. That got us to a certain number of followers, but then it started falling flat, and our follower growth was trending down. So we said, "All right, we've got to amp things up," and started merging positive affirmations with some sort of animated content. If you go far enough back in the content, you'll actually see penguins speaking and giving you positive affirmations. Looking back at that, man, I hated those times, because it was so messy and sloppy. I always like to chase perfection to some extent, so it wasn't the best time for us, because it really wasn't the best we could do.

Again, we didn't have a lot of financial resources compared to some other projects that had massive treasuries to deploy in certain directions. A lot of the time we were ad hoc, winging it. But we went with full conviction. We knew wholeheartedly that if we tried enough, tested, got to failure, optimized our failures, and looked for new areas of success, we'd eventually find our groove. And on Instagram we eventually did. We caught our first break: one of our animations got something like 40 million views, and we thought, "Okay, there's something here. Let's double down on this." It was a lot of figuring out what had the most momentum and then leaning into it.

The same goes for the community, talking with a lot of holders and asking what they wanted to see for the business. We didn't necessarily come up with a lot of the ideas ourselves. It was a lot of these open-forum committees, where people could get on stage in our Inner Igloo calls and suggest things we could do. The beauty of crypto, or of these communities, is that you don't really know who's who or where certain people come from. You'd sit in these Inner Igloos, pose a question, and say, "All right, come on stage and suggest your idea," and all of a sudden this person has this background and is connected to all these people, and it's like, "Holy crap, you could be a big needle-mover for us." So it was a lot of leveraging resources and connections, listening to the community, working with them, validating a lot of our ideas, and a lot of split testing to validate the direction of the business.

If you think about the conventional way of building an IP business, we didn't do any of those things. We went fully digital and leaned into the areas where we had the most expertise, which was social growth. If we could distribute content in our own ways and find validation for some of the themes, we could scale them almost infinitely, because of the resources and experience we have. The same goes for GIPHY. That was almost a community suggestion. It started small, then compounded and grew, and eventually became this massive top-of-funnel awareness channel for the business, and we leaned into it much more aggressively.

Hodl Up: In terms of growth and everything you just mentioned, I think Pudgy Penguins is probably one of the best examples of people being onboarded into crypto through NFTs, because I have friends who send me TikToks and Reels with animations or content featuring a Pudgy Penguin. I think that's amazing, because back in 2021, which is when I officially joined crypto, if someone had told me this would happen in four years, I'd have said, "Nah, that's impossible." Back in 2021 there was a lack of vision in many teams in the NFT space. But seeing you guys, it's totally different now. One question I have, and I don't mean it with any implications: how did you get all these brands, companies, and institutions to use Pudgies as their PFPs? I think that's the brand moving forward by itself, if you get what I mean. You have MetaMask, and everyone else, just rocking Pudgy PFPs.

Chef: We'll just call it a happy accident. A lot of community members and community artists just started creating these one-offs, and you pair that with the upward momentum of the business growing. We'll call it a project in this context, but to be super frank, I don't like it when anyone refers to us as a project, because if this is a project, it's a pretty big project. A project usually refers to something that starts small and eventually blossoms, and we've definitely gone beyond that. I also don't really like being labeled a Web3 brand. We've done way more than what a conventional Web3 brand does, and what does "Web3 brand" even mean? We're a brand. We have toys and we have content. We're a character IP company; that's what we are. But we're deeply rooted in Web3. If you look at why we were able to grow so much, it's because of the power of the community, which essentially stems from crypto.

So it was a happy accident how the PFP change happened. It was kind of like follow the leader. Once you start seeing this theme go around, and the sheer amount of engagement a lot of these companies, or even personalities, got... Think about the same concept: when you announce that you bought a Pudgy Penguin, or another NFT, and proudly post it on the timeline, you typically get a lot of community galvanization. People come and support you and welcome you. That same theory applied to a lot of these companies and exchanges jumping on the same bandwagon. They weren't necessarily spending money buying NFTs; these were just honoraries. But it still had the same level of network effects, which became part of the business. Again, it's about trying a bunch of different things, and when something has some stickiness... it's like the analogy of throwing spaghetti at the wall until it sticks. We threw a lot of spaghetti, man, and it stuck. So we found our groove.

Hodl Up: As you said, it's a domino effect as well. You just need one good influencer to share a specific design, and then you'll have all the brands and communities replicating it and wanting to be part of it too.

Now I want to dive into something a bit different. You're much more than a project, but brands like yours have my utmost respect simply because you survived the post-FTX crash. So I want to discuss that a bit, because NFTs especially got hit pretty hard, and a lot of people argue that NFTs haven't really made a comeback, and that the whole NFT segment has regressed in terms of how it's used today. Given that you're much more than that today, and, as I said, the face of crypto in many ways, what were some of the challenges after 2021, when the bear market started, and how did you overcome them? Was there ever a point where you felt concerned but knew you still had to keep pushing?

Chef: We were always concerned. As entrepreneurs and founders, you always have that sense of worry. And not only is your own performance measured, the community's performance is measured too. We call this "braving the cold." We were able to huddle up together and find ways to push through it. It was dark times. We were also going through a raise. We were getting very close to a fundraise, and during the FTX collapse, a lot of our tentative offers got pulled back. That put us in a really dark, tough spot. We'd been on track to raise within three months, and it ended up stretching to six months. Luca and Lorenzo basically spearheaded that effort, taking a thousand calls, along with a few other people. It was really tough. But if entrepreneurs know anything, it's how to handle themselves in trying times. You just have to keep the ball moving forward any way you can. You have to be as productive as possible: what can we be doing to move the space forward?

So in parallel with fundraising, we were working on toy manufacturing. While that dark era was brewing, the business side, what we were trying to accomplish, was in full motion. That's around when we were already engaging with licensing partners and toy manufacturers to start producing the toys. Then, a few months later, we came out with massive announcements: first Amazon, then Walmart. Dark times shouldn't necessarily steer business decisions. You have to be fundamentally rooted in your own beliefs. If you have conviction, you lean into it regardless of economic circumstances or black swan events. There's an element of leaning into your biggest bets, and the toys and the fundraise were the two largest bets we were making, while keeping the community strong and letting them know there was something to look forward to. A lot of people lose hope, so we said, "Hey, there's something to look forward to. Be patient, work with us." With that balance between the community and us working towards this, we were able to get ourselves out of those sticky situations.

Hodl Up: Now let's move to better times, to today and this year specifically. I want to talk about PENGU, the token launch, and the airdrop. When the airdrop happened, I didn't really expect the token to do this well, because airdrops of that scale usually don't perform well. But checking the price today, it's quite high. It had the normal, natural dip every airdrop has, but now the token is performing really well. So I have two questions: why the token? And how did you manage not to let the token go down 99%, as usually happens with airdrops, especially NFT project tokens?

Chef: Totally. On why we launched PENGU: as a brand focused on distribution, trying to get into as many households as possible and really proliferate the IP, specifically from the Web3 and crypto side, the price of the NFTs got really high. It became insanely expensive to participate in the ecosystem, even if you fully believed in it and wanted to be part of it. If you think about Pudgy Penguins' awareness funnel, you had a lot of people dropping off at those expensive price points. Maybe the $200,000 price points were out the window, but we were still talking $30,000 or $40,000. So it was a pretty expensive fee to participate in the ecosystem, and for us, distribution is the moat when it comes to growing the business. So we looked at what PENGU could do, and PENGU essentially let us open up and broaden the ecosystem. Choosing which chain to launch on wasn't the easiest decision, but it was a clear one. Solana was best positioned. They'd won the consumer crypto narrative, and they had the easiest tools to get in and buy. That's how we approached launching PENGU.

In terms of navigating the hard times, the 90% drop: we had a lot of black swan events too, if you recall, like LIBRA, MELANIA, and TRUMP. They weren't easy. A lot of people who had a lot of conviction in PENGU needed to rotate and free up capital to participate in those other launches, which had a negative impact on us. Then those people lost a lot of money too, so there weren't many net new buyers coming in. Pair that with massive sell-offs. We were doing really well for the first month, month and a half. We had a lot of buy pressure from retail buyers, people on Instagram and TikTok, people participating in memecoins. We were very viral. The anticipation for the launch was high, because the business had a lot of fundamentals, and people saw that as the conviction element to actually participate.

After that massive drop-off, it was really tough for us. There were allegations of sell-offs, allegations of rugs. If you want to feel terrible, just open X, Instagram, and TikTok and see people saying, "It's a rug." But one thing was clear: our fundamentals couldn't have been better. The business was growing aggressively. Toys were selling, views were compounding month over month, and the fan bases were growing. So we started looking at it as, "Okay, maybe price is just a lagging indicator of fundamentals." And we did what we've historically done best: moved with conviction. We knew people would eventually come around if we shipped enough and reassured the community that we were here and not going anywhere. For us, this is a legacy play. We're trying to spend a decade building this business. We're not going anywhere.

So yes, it hurt a lot. It drove our sentiment down. At a certain point we were questioning our existence. It was really hard for Luca mentally, because he basically falls on the sword if anything ever goes wrong. And there was the internal dilemma of keeping your sanity: how do you deal with people who aren't so educated, who don't understand these fundamentals? A lot of people don't have business acumen, so they're not even looking at Pudgy Penguins and its performance. They're just watching the price go down, so it's natural for anybody to say, "Yeah, this is a rug." That took zero effort to say, but it hurts, and it creates false narratives in the space. So we just had to stop looking at it. We said, "All right, look, we know we're here. Nobody knows this business better than us. We know what we're working on, and we know the collaborations coming down the pipe." The business was growing, and given the conversations we were having, how could you not get excited about what we were working on? So we put our heads down and did what we do best: we shipped. Eventually the space came around and said, "Look, there's a clear winner here that we've been overlooking." A lot of people had lost money too, so they didn't necessarily have the capital to make big new bets. There was a lot of uncertainty: "Even if Pudgy Penguins is shipping, is the price going to recover?" But we stuck to our vision and our beliefs, and now we're here.

Hodl Up: I still think you handled it pretty well in many ways. When you think about why people have these misconceptions about token launches, it's because a lot of projects in recent years launched a token mainly to extract the last bit of value from their communities. You didn't do that. You provided another avenue for people who couldn't get into the NFTs because they got too expensive, another way to be part of this ecosystem and community. So I think you did incredibly well with that.

Now I want to talk about something else, because managing a crypto community is one thing, managing an NFT community is another, and managing something that's not crypto at all is a completely different thing. As I said, a lot of people have seen Pudgy Penguins without necessarily knowing about crypto. Even my mom has seen the Penguins, but she's never bought or invested in crypto. So how do you balance these two audiences? I assume you have a pretty big team, not all of whom are into crypto, that deals with the boomers, or the non-crypto people. How do you balance that?

Chef: Internally, there's been a kind of divide in our areas of focus. Luca, Lorenzo, and Vedant have always focused on the Web3 side of the business: NFTs, crypto, what it means to proliferate within the space, bringing high conviction, and leveraging a lot of what we do on the Web2 side. I like to sit in the Web2 bucket, where we build really strong fundamentals, so when you look at the business you don't find an Achilles' heel. We're not playing the vaporware game or the smoke-and-mirrors game. It's all tangible. You can go into a Walmart and see it. You can go to the Instagram. You can go to our Comic-Con events and talk to actual fans who religiously send content to each other, come to the booth, and sing our praises: "Hey, I'm a big fan of this. I love Pudgy Penguins."

A lot of people, and by that I mean a lot of people in crypto, don't see that firsthand. They see the headlines, the NFT supporters, and a lot of traders doing analysis on how PENGU is going to reach new heights. But when those worlds cross paths, like when your grandmother or your aunt sends you a Pudgy Penguins GIF, that gives you conviction. You're way more motivated to believe in the business than you were before. Now imagine your conviction when you go to one of these events and start asking people, "Why do you like Pudgy Penguins? How big a fan are you?" and you look at their collection, how many physical products they collect and buy every time we drop something.

So we balance it that way. We treat the Web2 side as the actual rock-solid business fundamentals: building IP deals, building games, our arcade machines in arcades globally, our retail distribution strategy, and everything that goes into building a character-based IP business. And that's what a lot of people in the space, let's call them traders, look at. Those are the fundamentals they trade on and the beliefs they lean into.

The big challenge for us is how these two worlds converge, how they speak the same language. We recently launched the PENGU website, which gives you the hardcore facts, speaking a bit to the native crypto and Web3 audience, but also to people who are just generally curious: "What is Pengu? What's so interesting about it? I want to know more of the story." There's an experience on the website called Highlight Mode. If you click it, you can walk through the journey of Pudgy Penguins and really feel it; there's an emotional connection to the journey. It's interesting. Pudgy Penguins is like a big onion, and you keep peeling back layers. The surface level, the outer layer of the onion, is the views, the GIFs, the Instagram content. Peel back a layer and it's products. Below that, the communities. Below that, the crypto community. Then the NFTs. Then the lore, and then the acquisition. There are so many layers to this business. From a fandom perspective, there's so much to learn here, and it's an inspiring story: how a project that was once categorized as just a project became the global phenomenon it is today. I think it's a really interesting story for anybody, whether you're an entrepreneur looking for that spark and some inspiration, or a trader looking to participate in Pudgy Penguins or PENGU who doesn't have the background, wasn't around during the NFT era, and doesn't understand the roots and impact Pudgy Penguins had on the space, and is now just curious about how PENGU fits in. I'd say we've done a pretty good job of addressing a lot of these points and telling one cohesive story, so anyone who has just come across Pudgy Penguins and wants to learn a bit about the story can do that.

Hodl Up: I get why you're the CCO of the company. I didn't expect the onion example. I wanted to talk about soulbound tokens. I know it's a long shot, since you're more of a creative guy, but I've never seen soulbound tokens used by mainstream brands or companies. I've heard about the concept and read about it, and then I saw that Pudgy Penguins also issued soulbound tokens twice, in 2022 and 2023. How do they fit into the ecosystem at the moment?

Chef: That's more of a Web3-native question. We've actually dropped a lot of soulbound tokens, and we still do occasionally. We did it with collectibles. If you bought the physical vinyl figurines, or you were a fan on Instagram, there was this lighthearted digital experience. You abstract away the complexities of NFTs and all that. It was a very lighthearted way to get into this digital ecosystem via soulbounds, and we tested that a lot with these collectibles, and with people's participation as well: people who did certain actions were airdropped a soulbound. I see soulbounds as a lighthearted, soft touch for getting into the ecosystem. Have we leaned into it aggressively? I don't think so, not yet, because we're still refining and cleaning up a lot of our infrastructure as we get ready to scale and take a more conventional approach to building IP. We're trying to figure out how all these moving pieces fit together.

Hodl Up: In my opinion, what you did differently is this: back in 2021, all the other NFT projects tried to integrate the metaverse concept. That was their end goal, and whenever you talked to them about Web2, or traditional industries, they'd say, "No, those are dead. The metaverse is the future. That's all we have to do." You did the best of both worlds in so many ways. And when you think about the non-Web3 side of what you've been doing, there are a lot of different challenges, from copyrights to copycats. We've seen it with Labubu dolls, for example, with so many fakes, Lafufus or whatever they call them. And speaking of Labubus, I saw a recent tweet of you trying some sort of accessory on a Labubu. Where are we on that, and is there any accessory like that people can look forward to?

Chef: That was an experiment I tried. I caught onto the whole clip-on trend about a year and a half ago, before the whole Labubu craze, and we tried it with the Pudgy Penguins line. The problem was that, because we were so new, we hadn't defined our core characters. Pudgy Penguins is the brand name, but if you're in the character IP business, who is the character? We didn't figure that out early enough to greenlight an entire retail strategy around one, two, or let's say four characters that people resonated with, followed, and fell in love with. In theory, we really liked the clip-on concept, and it was one of our best-selling SKUs, but it wasn't Pengu, or it wasn't Polly. I think if it had been Pengu or Polly, we'd have seen a much greater impact on the business. Now we know this, so our entire retail strategy is centered around these characters' likenesses, specifically Pengu.

The Labubu thing came about through this idea of IP remixing: how can you do really interesting crossovers? It's also riding waves. Sometimes that's cringe and corny, so it's about striking a balance and doing it tastefully. I thought, "Yo, what if we do a skin?" I saw READYMADE do skins for Labubu. It's a luxury ready-to-wear brand, and they were selling outfits for Labubu for $1,000. The accessory to dress your Labubu was $1,000. I thought that was really interesting. And with IP remixing, you take two IPs, merge them, and do a really nice rendition. So I said, "All right, how fast can we greenlight this?" We came up with the first prototype, and we're already well beyond it. The final version is a Pengu costume that goes on top of a Labubu. He has a backpack, and inside the backpack is Polly, so he's carrying Polly around everywhere he goes, on top of the Labubu. We're dropping, I believe, about 500 units later this year, something people can just tack onto their Labubu as an accessory. It was a small, ad hoc thing, not a core focus, because we're still building the likeness of our IP business. But doing occasional remixes is no different from doing a collab with, say, Line Friends. You're trying to cross-pollinate different audiences. That was the strategy: how can we cross-pollinate the likeness of Pengu with Labubus and come up with a remix that lets people feel they have the best of both worlds clipped onto their bag or other accessories? That was the thought process behind the Labubu outfit.

Hodl Up: Since we're talking about your real-life products: I know royalties get sent out to holders as well, but there's this whole licensing process. I'm not sure my research is correct, but could you walk us through it as simply as possible? Explain it like I'm five: how does licensing work, and how can I, as an NFT holder, earn from real-life Pudgy Penguins sales?

Chef: This came about because we wanted to license the likeness of the NFTs from holders and make toys from them. The in-between was really difficult: drafting a lot of contracts, defining the royalty terms, and getting consensus between both parties. We didn't have a way to streamline and automate that, so Lorenzo came up with a platform we could build to automate a lot of it, and that's how Overpass came about. Overpass was essentially a solution to the problem we ran into: how do you license back the likeness of these characters and reward holders with royalties? That sped a lot of things up. It became super automated. Users go to Overpass and see all the listings for future physical or even digital products that require some form of licensing. They submit their character, and the receiving party goes into our portal and makes a selection from all these different submissions. These selections are typically aesthetically driven. You don't really consider rarity or anything like that. It's whatever has the best color combinations, whatever looks appealing. You make the selection, sign the agreements, everything is super automated, and then you wait until the toys actually sell.

That part was a bit more laborious. We also had to get in touch with holders and find out their wallet information. Once the quarter's sell-through was complete, we counted everything up, worked out the net, and paid out all the holders according to their royalties. It was a fun experiment. Are we going to do more of it? Yes. At mass scale? Probably. The problem is that we need to focus more on proliferating Pengu and sticking to the conventional side of things. We need to do everything we can to grow the brand and grow awareness through Pengu, and let people emotionally connect with the character, his backstory, and the dynamic with the other characters. Treat it like a real IP business, so people actually want to go buy household accessories and little clip-on plushies of the character they're most familiar with. And then we'll slowly bring the other characters, the other NFT characters, back in. We proved the concept that mass retail did well. But we know that to scale to hundreds of millions of dollars in revenue, we need to lean into where we find the most success, which is Pengu, Polly, and Little Pudgies. You saw how these four characters are designed. That's our main focus. Then, occasionally, we'll sprinkle in other characters, and instead of just licensing a character and going straight to retail, we'll add an element of content, because people need awareness of the character. We'll come up with a name for the character, maybe in collaboration with the NFT holder: "All right, what would you like to name this character?" Then we incorporate the character into our animations and publish content for the foreseeable future. So when the toy is actually available for sale, people have the emotional connection and familiarity to buy it, and it's off the back of the NFT holder. I think it's going to come full circle.

Hodl Up: I think that's also a must, not to prevent going obsolete, but to avoid losing people's attention and interest in your communities, because when I think of Labubu, for example, it's very hype-driven, something that could die out eventually, like the fidget spinners we had in 2015 or 2016. But you've been doing this for four years, and four years in crypto is quite a long time; time moves differently here. So, given that you maybe didn't anticipate the huge success you've had in four years, now that you've gotten a taste of what you're able to do, where do you see the Pudgy Penguins franchise, brand, ecosystem, whatever we want to call it, in the next five or 10 years, both in terms of IP and its impact on crypto? I know you've also applied for an ETF, right?

Chef: Yeah. That's the finance side of things. Right now it's being labeled the face of crypto, but crypto will eventually just be labeled finance. So I think it'll move from Web3 to crypto to finance, with Pudgy Penguins becoming the face of finance, and we'll see how that plays out in real time. It's a very ambitious and very interesting goal, because finance isn't fun. It's numbers all day. So you add a cute little character to it. It leans further into the roots of the business, which were deeply rooted in hyper-financialized assets.

On the IP side, and what to look forward to in the next five to 10 years: because we're taking a very serious, conventional approach, it's really about driving familiarity around Pengu. Pudgy Penguins has already built up some familiarity, specifically in the traditional space. Certain studios and massive IP companies are already familiar with the company and the Pudgy Penguins brand. But we have yet to build much familiarity around Pengu. Who is Pengu? What's his backstory? What are his challenges? What's the character dynamic? So for us, it's heavily about proliferating Pengu now, because Pudgy Penguins is the business and the brand, and Pengu is like Mickey. If you want to make the comparison, Disney is Pudgy Penguins, and Mickey is Pengu. So we need to start building familiarity around the character, and that will come with more content and more toys and physical goods. And we're not just talking toys, but household items and accessories, things you'd see sold at MoMA. And then really nailing the hero product that exposes Pengu to hundreds of millions of people worldwide.

That's typically done through a hero product, like a game, a series of comics or books, a film, or a series. For us, because of the deal with Mythical Games, we're looking at Pudgy Party as that mass breakout product that can bring Pengu into households worldwide. And off the back of a successful game... we already have a lot of serious conversations with studios. I don't want to say who, but we've done a very good job of positioning the opportunity in front of a lot of studios, so they look at Pudgy Penguins and say, "There's a lot of opportunity here. If we jump on this now and work towards a franchise deal, five years from now we'll be considered early." They're looking at all these metrics as a potential gold mine.

But we have to do a lot of the fundamental groundwork, which is building more awareness of the characters themselves. Then, five years from now, if you're watching a movie, there's massive success that can come from that. If you launch a successful movie and it resonates with hundreds of millions of people, that opens Pandora's box to literally billion-dollar franchise opportunities. It would be a parabolic success for the business. If you position it correctly, with Little Pudgies and Pudgy Penguins, and the movie comes out about the dynamics between Pengu and the other characters, and you hint a little at Little Pudgies, a little Easter egg, then a Little Pudgies movie can come out of that. It's very similar to Despicable Me, which was its own franchise, and then Minions broke out of it. It's very similar to Shrek. There are pretty much five Shrek movies out there now, or they're working on the fifth, and what stemmed from Shrek? Puss in Boots, which became its own hundred-million, billion-dollar franchise, and I think they're working on Donkey now as well. You have to look at it through that lens. There's so much opportunity here, but it all starts with, and is deeply rooted in, the characters.

In some of the conversations we're having with studios, they'd prefer to work with brands, or greenlight a film when it's based on something. It can't just be "Pudgy Penguins: The Movie," with people going, "I've never heard of Pudgy Penguins." It has to be "Pudgy Penguins: The Movie," based on the book, or based on the successful game, like you saw with Angry Birds. If Angry Birds had just launched a movie, could it have been as successful as it was? Probably not, or maybe it would have. The world will never know. But they were way more successful because people spent a decade playing their games, and then the movie came out based on the game. It's very similar to Mario. We all spent our childhoods playing Mario games, and off the back of that compounded success, they launched a movie based on the game and the familiarity around its characters. We're trying to follow the same approach. You have to take a few steps in between that expose you to these massive franchise opportunities. So if and when Pudgy Party becomes successful, that will be one of the things people look at: "Based on the game Pudgy Party comes Pudgy Penguins: The Movie." And people will say, "Oh, I used to play with these characters. I used to engage with them." Or if it's not the game, maybe it's a series of comic strips we'll announce and release. Or, because we've built this business so unconventionally and the whole industry is changing, maybe it could be Pudgy Penguins based on the Instagram. You literally say, "Based on the Instagram account comes Pudgy Penguins: The Movie." We don't really know, but we're trying to apply these best practices to increase our chances of a very successful franchise deal.

Hodl Up: You mentioned every type of content you could create in the future, but what about an anime? Just a samurai Pengu going brutal with some kind of, I don't know, penguin jutsu.

Hodl Up: Penguin jutsu.

Hodl Up: What about that? Here's an idea.

Chef: Look, you have the opportunity to do that with comics. Are we going to apply that kind of theme? I don't know. That'll be up for debate; we'll let the committee decide. But it has to be within the realm of what you'd close your eyes and expect Pudgy Penguins to release. If we came out with an anime-inspired comic, people would say, "What? These guys just went a full 180 into a whole different theme." So we really have to lean into areas where people expect us to be, and what people expect us to produce. If it's not an anime strip, it would definitely be some form of comic that at least gets you involved. There's a story, a character development arc that Pengu has to go through. How he maybe finds love with Polly, how Polly ends up going on an adventure, who the villains are, whether it's this character or that one.

That's why, about four months ago, we brought on narrative engineers to help us develop the narrative, or at least the deep character backgrounds. We tried to do that ourselves very early on, but I'm not a screenwriter. I haven't produced a single show in my life. I've produced a bunch of short-form UGC content, but that doesn't make me a producer. So we're bringing in experienced people to help us develop the foundation and let the penguins write the story for themselves. For us to sit here and think we're going to write the best story would be heavily over-indexing. I think if you create this foundation, use a bit of what the community is thinking, test and validate some themes to figure out what works, and do lighthearted little drops, like comic strips, and maybe another book, it will lead to developing themes people are familiar with. Then, when you're talking about Pudgy Penguins, you're not talking about Pudgy Penguins the brand. You're talking about Pengu: "Oh, I love it when Pengu did this."

Can you name a single IP in the NFT space where you can refer to a character that did something you liked? I don't know what your favorite movies are, but most of my conversations with people are about the success of Pudgy Penguins, Pudgy Penguins doing this, Pudgy Penguins doing that, or what Pudgy Penguins should do. But when are we going to have conversations about Pengu? "Oh, I love it when Pengu did this. I love that episode. I love that book you launched where Pengu did this." It's these fan-favorite conversations that lead to big opportunities, and we haven't had that yet. So we're not at a place where we can say we're actually a success. We've built the overarching likeness of the Pudgy Penguins brand, but we need to dial more specifically into the characters. When you're having fireside chats or sitting with your friends, you talk about Iron Man, or The Dark Knight and the dynamic between the Joker and Batman. Those are fan conversations about the characters. You're not talking about Marvel as a brand. Maybe you talk about the brand at some point, but mostly you talk about the characters, and you resonate with them: "Between Batman and the Joker, who do you resonate with most? Who fits your archetype, your persona?" I'm a Dark Knight fan; I've always wanted to live that Bruce Wayne lifestyle. You see what I mean? That's what we're trying to create, and it takes time.

Hodl Up: One of the best examples, and we use it a lot on this podcast because we're League of Legends players, is Arcane, the TV show they made. A lot of people watched Arcane because they play League of Legends, but now a lot more people play League of Legends because they liked Arcane. The number of players the show onboarded into the game is huge, even though the game sucks. As a player myself, I'll say that publicly. But I get your point. And we've also discussed this a lot with Dren: lore is really important for any character you have. If there's lore behind it, it's going to be a success. So, to wrap this up, and it's not about lore, but since you're the creative guy on the team: what's your favorite trait in the whole collection? One trait.

Chef: One trait. Damn, putting me on the spot. They're all great. For me, I think the wizard hat is sick. The cowboy hat is badass too. My PFP is the only Pudgy Penguin I own, which is crazy. I should have been sweeping my own penguins, but I was more focused on building the business than on the trading side. My logic behind my character, with the egg on top of it, is the analogy that he hatched an egg, and there's a little penguin inside. I'm always hatching ideas, always coming up with creative stuff, so I see it as a light-bulb moment: "Oh, I hatched a new idea." I think that's one of the reasons I bought that penguin. Also, the other ones were super expensive, and I thought, "We just bought this thing for two and a half million bucks. Do I have more bread to sweep more penguins? Probably not." So I thought, "You know what? I'm already overexposed to Pudgy Penguins. Let's just roll with this one PFP."

Hodl Up: You did some form of sweeping, right? The floor price, I assume, from what you just said.

Chef: No, I swept nothing, man. I swept nothing. I literally went and found a penguin I liked at a price I could afford at the time. Like I said, all my cash was tied up in the Pudgy Penguins business, not in the characters. So I thought about having to get more exposure and create a whole persona and identity around something. My wife and I actually picked it out together, so it was cute. There are tons of great characters.

Hodl Up: All right, Chef, thank you very much again for joining us today. We could have gone on for hours and hours talking about everything. It's just an amazing IP. We wish you a good day ahead; it's early where you live. We'll probably talk again soon. Good luck with Pudgy Penguins, and good luck with your personal life.

Chef: Thank you so much, boys. Thank you for having me. That was amazing.

Hodl Up: We say this after every episode, dude, but we just had Pudgy Penguins on the podcast.

Hodl Up: That was massive. Let's talk about the insights we got, because personally, I've been researching this project for years, and I never knew how it really worked.

Hodl Up: They're pretty massive. They're huge. The numbers are good. They're the biggest in terms of market cap, viewership, TikTok, Instagram, every type of social media. Every institution and exchange, every big player in crypto, has had a PFP related to Pudgy Penguins at some point. But what I just realized is massive about them is how they've handled everything from the beginning, as Chef just explained. That's rare to see. This is a Web3 brand, let's not forget.

Hodl Up: Web3 or Web2. It's not a Web3 brand; he just said it's not a Web3 brand.

Hodl Up: But still, when you talk about crypto brands, or brands with at least some exposure to crypto, they're usually disorganized. They don't push this hard.

Hodl Up: And I think this is exactly the kind of building I want to see in real life. We had Helium as well, which has this Web3 brand but is building on Web2 too, connecting with people in real life. I think this is the way. They're bridging the two worlds.

Hodl Up: What's impressive to me is that if I had 2.5 million available to buy or launch something of my own, I wouldn't think of buying another project. But they saw the vision. You can't go wrong with penguins. Name a bad movie that features penguins. There isn't one. Or a game. We had Club Penguin. You played Club Penguin; I didn't.

Hodl Up: I'm super happy we made this episode happen, and I look forward to many more plushies. We're going to have to order at least three today, and have some of them here. We'll probably hold them throughout the episodes.

Hodl Up: Maybe we should buy one.

Hodl Up: Of course. We'll buy two. Is it 60k apiece at the moment?

Hodl Up: We can buy the memecoin, though. I owned some a few months ago, but then I had to sell because of the financial situation of the world.

Hodl Up: Let's open a GoFundMe and make this our cause.

Hodl Up: In the first episode, we had to open a GoFundMe for my hair. "Get a haircut." So now we've moved on to better causes.

Hodl Up: That's true. The $7 haircut and the $60k NFT JPEG, as Chef calls it. A bit of a discrepancy there. Thank you, Dren.

Hodl Up: Thank you. We'll see you in the next episode. We love you guys. Bye-bye.