TL;DR:

Pudgy Penguins is building an "onchain amusement park" with NFTs, physical products, and a strong distribution engine.
Its success comes from scaling distribution and becoming a "planet" that attracts other brands.
The Abstract Chain will provide infrastructure for new IP, tools, and economic activity.
The $PENGU token enables community ownership and innovative loyalty rewards.
Traditional studios can’t easily replicate Pudgy's onchain-first model.

I ended 2024 with two loosely coupled essays about the future of entertainment and how onchain primitives and mechanics will impact it (here and here). Today we'll dive into the third installment.

The premier onchain neo-franchise is Pudgy Penguins. This won't be a full historic run-down of the project, but rather an attempt at analyzing some of the key components that

a) will fuel its future success

b) inspire Hollywood/traditional entertainment properties

c) in some ways be hard or impossible for b's to replicate.

What started out as a profile picture NFT project (in a herd of many such projects at the time) has evolved into something much more.

I consider this ecosystem as the first attempt at building an onchain amusement park. Below we'll cover key components that make up this park:

Distribution engine
Vertical integration
Novel loyalty and reward mechanisms
Amusement Park Flywheel

Disclaimer: it's important to highlight that much of that we'll explore is not confirmed plans from Pudgy Penguins, but me speculating through the lens of the neo-franchise framework on how (I think) the ecosystem will expand.

A (very short) intro

Pudgy Penguins launched as an NFT collection during the NFT craze of the summer of '21. Like many of its peer collection it launched with much hype, less. plans. After some controversy and community dissatisfaction, Luca Netz, an experienced e-commerce and marketing entrepreneur bought the brand for ≈$2.5M in April 2022.

After this acquisition, the project has evolved into an IP-driven consumer franchise expanding beyond the initial bubble of NFT speculation degeneracy, including a physical toy product that's sold more than a million units at Walmart and billions of views in traditional social media channels.

The Pudgy-ecosystem is currently made up of the following parts:

Parent company: Igloo Inc
Pudgy Penguins core NFT collections
Abstract Chain (to be launched consumer-focused L2 blockchain network)
Secondary products/tooling: Overpass IP, a platform to handle NFT-based IP licensing

Distribution is key

Distribution is a key challenge for many onchain products and projects. Both onchain distribution (attracting consumers that are already using crypto products), and – maybe more importantly – distribution from the "outside world". For the onchain economy to grow, the latter part is necessary.

We explored this in last year's "Distribution Kings".

Platforms that

(1) already have an established user base and

(2) straddle the worlds of web2 and web3

...have a huge advantage (like Telegram and Coinbase).

Onchain products and brands will fall into one of two categories: Planets and moons. Attention is the gravitational field.

- Planets: strong enough gravitational field to sustain vertically integration and build an ecosystem that attracts and spawns moons

- Moons: benefit from being within the gravitational field of a thriving planet

Many projects will fail by wrongly labeling themselves as planets, when they could thrive as moons in a fitting ecosystem.

A key to Pudgy ecosystem success is its ability to create its own distribution engine. The engine is driven by IRL products and a massive web2 social network presence. Any project that can sustainably scale their own distribution engine will automatically be more valuable and more successful than its peers. In fact, these projects become planets with their own attention-based gravitational fields that attracts its peers to to build within this field.

Since distribution is so fickle, once you have it (lightning in a bottle) it makes a ton of sense to create as much leverage on it as possible; you build an onchain amusement park.

Amusement Park Scaffolding

Pudgy Penguins is correctly self-labeling as a planet within this framework. Their (soon?) to-launch Ethereum Layer2 blockchain network, the Abstract Chain is both a vertical integration strategy and an expansion play to increase distribution engine leverage.

The Abstract network is the onchain amusement park infrastructure, and the Pudgy Penguins brand is the flagship ride. This combination kickstarts the flywheel.

The opportunity is to grow the experience set of the amusement park in order to retain consumer attention (and money) over time – creating a compounding machine.

I'm sure we'll see them launch their own, internal brands/strands of IP down the line, but the big growth opportunity is attracting external brands.

For outside builders, the amusement park offers three attractive benefits:

Developer tooling
Distribution
A working economy

(That last part is important, remember it for the next segment).

It creates an environment where other brands can come in, set up their own rides in the park and piggyback on the above. Developer tooling/infrastructure is not a unique value proposition (there are many blockchain networks). It's the combination of that plus a sustainable, owned distribution engine and established economic activity that is attractive.

Every new ride in the amusement park increase the experiential value for consumers, attracts more people to the park, and makes it more attractive for the next brand to launch their ride. All while the value of this increased activity accrue to the amusement park infrastructure.

This is also where distributed infrastructure ownership truly shines; community members, ride-builders and investors can own stakes in the amusement park along side the Pugdy Penguins holding company (Igloo).

The Community is The Pulse

Traditional entertainment franchises have shallow engagement models centered around monetising the consumer. Fan communities naturally drift towards deeper engagement. People want to be close to the things they vibe with. Most of this energy is lost in traditional entertainment models, but will be core fuel for the Pudgy ecosystem.

Owning and earning is the final step of the Entertainment Participation Spectrum™.

As the lines between creating and consuming continues to blur, the entertainment brands that harness the full spectrum will be the winners of the future. Pudgy Penguins understands this at a deep level.

Until recently, the way to be an owner in the ecosystem was limited to buying NFTs from the core or the two supporting collection. As the value of the ecosystem attention has led to price appreciation of these assets, it's become prohibitively expensive for most users.

To solve for this, Pudgy Penguins launched a fungible ecosystem token, $PENGU, in December. There haven't been much official information about the role of this token yet, but:

it lowers the barrier for community ownership → growth
can be used as a loyalty and rewards mechanism for community contributions
sets a tangible valuation on the aggregated ecosystem attention (leaving traditional Hollywood studios wide-eyed)

Combining the first two points above on crypto rails sets the stage for novel onchain loyalty experiences.

We can imagine how active participation in the Pudgy ecosystem in the future will be rewarded with brand tokens ($PENGU). This tokens have tangible value, and the consumer can choose to

(1) hold the tokens as an investment

(2) swap it for fiat money to spend IRL

(3) bring it to other rides in the park

Let's continue this imaginary tale by selecting (3). The consumer swaps her earned brand token – $PENGU – for the base currency of the Abstract Chain ($ABS?). This currency is recognized and honored by all ride operators.

The consumer visits a new ride, pays to play, but – crucially – with value that was payment for attention/engagement/participation. Which is a very different prospect than loading a balance with your credit card beforehand (and paying the 2.5% credit card fees in the process).

It's an embedded reward economy that mimicks the "airdrop culture" of crypto native projects, but at a level and with an experience that is optimized not primarily for financial speculation but for play, fun and entertainment.

It also creates an environment where funds can be circulated through various attractions in the amusement park. It's the onchain entertainment version of what Square (the payments company) has been building out with its product set of both B2B and B2C offerings. Their big motivation being to increase the leverage/utilization of cashflow within it's ecosystem before incurring credit card and banking fees related to on-ramping and off-ramping.

In short; Pudgies tokenized the attention value of their franchise via the $PENGU token, and this liquidity is on standby to test new rides in the park.

Difficult to Replicate

People like comparebles like "this is the next Disney" etc.

The "next Disney" will not look like the current Disney.

But, if we want to play with that line of thought, the foundation the Pudgy Penguins creates with its onchain amusement park is directionally what an onchain-era "house of IP" looks like. Anyone can set up attractions in the park, but as they control the main distribution engine, Pudgy Penguins can direct consumer attention (and financial incentives) to the best rides.

The structure of this whole thing involves a bunch of components that are near-impossible for traditional franchises to replicate for a thousand different reasons, including legal, shareholder interest and tech capability.

Other crypto-native projects will surely attempt to follow this playbook, too. Many of them will fail due to overestimating their gravitational fields.

There are also going to be attention-based network effects at play that benefits first/early movers (like Pudgy/Abstract).

reach out to me on X or Farcaster if you have feedback or are working on something cool you want to discuss.