Pudgy Penguins wants to use its NFT-inspired toys to bring IP to the real world

As the NFT sector continues to waddle through a period of frosty consumer interest, some collections are diving deep, exploring new waters and expanding their horizons to the physical realm in hopes of reaching more people and growing their brand.

Pudgy Penguins, an (admittedly adorable) NFT collection that also doubles as a web3 IP company, is releasing a line of toys dubbed Pudgy Toys, Luca Netz, CEO of the company, told TechCrunch+ in an exclusive interview.

The penguin plushies are being made in collaboration with PMI, which also produces toys for Fortnite and Among Us, Netz said.

The company sees physical toys as a “Trojan horse” for the web3 ecosystem and NFTs. “Unfortunately, NFT revenue is not sustainable and it’s not really growable,” Netz acknowledged, adding that the toys are meant to make the company more sustainable. “Secondly, we wanted to create an IP that transcends this ecosystem, and the way I know how to do that is through physical products.”

Launched in 2021 and acquired by Netz in April 2022, the 8,888-NFT collection has grown to include real-world products and experiences ranging from live events to physical goods (like these toys).

The company has chosen and licensed 16 SKUs inspired by Pudgy Penguin NFTs from the original collection. The 16 NFTs were picked based on aesthetics, various characteristics and how engaged the owner of the NFT is with the community, Netz noted.

“Every toy is an NFT that lives on the blockchain and that NFT is licensed directly from the holder,” Netz noted. “So every time one of those toys sells, they make a royalty in perpetuity.”

The initial launch will include about 100,000 toys, priced from $5 to $35, that will be sold online and through retailers internationally. Each toy comes with a birth certificate and QR code that unlocks a series of NFTs, or a trait box, on its online platform, Pudgy World, Netz said.

“Pudgy World is where you build your character, play mini-games and interact with other users,” he added.

The company’s endeavors seem to be paying off: It recently raised a $9 million seed round. Of course, this is not the first NFT-focused company to raise capital, but the funding indicates that off-blockchain efforts are a good way for popular digital collections to build on their brand and attract external capital.

The NFT collection appears to be as popular as the bird it’s named after: Pudgy Penguins is 21st among the top NFTs by sales volume. The collection has recorded over $252 million in lifetime sales, and in the past 30 days, sales rose 84% to $4 million, according to CryptoSlam data.

Breaking the ice

Launching a toy line may seem insignificant at first glance, but it’s proof of the fact that NFT projects can be flexible enough to be molded into something that appeals to a broader, more diverse audience.

If you consider Pudgy Penguins’ project, these toys are often cute, so someone who’s not into crypto could easily buy one of them without even realizing it’s related to an NFT project. And that could be their first indirect step into the world of crypto.

Pudgy Penguins certainly hopes that will happen. “If you know nothing about NFTs, you can purchase this product, walk through the steps, understand what an NFT is and why an NFT is meaningful. I think it can close the loop for the first time,” Netz said.

To people outside the crypto ecosystem, NFTs can feel daunting or unappealing due to the sheer amount of friction involved. You usually have to convert fiat currencies into cryptocurrency, make a crypto wallet, transfer funds to that wallet and then connect it to a marketplace to buy an NFT. That’s a lot of steps that the average person doesn’t want to go through.

“Right now, if you want to get into NFTs, it’s really tough,” Netz said. “But if you buy a toy and walk through the steps, you’ll understand what an NFT is within 15 minutes and why it matters.”

Mainstream consumers want real utility and to do things with their toys, and this is the digital arena that allows them to do that, Matthew Liu, co-founder of Origin Protocol, told TechCrunch+.

This move points to a paradigm shift within the NFT space as well as for IP rights, Liu said. “In the past, you had Disney putting out things from the top down, as one monolithic organization. But in this new web3 world, it’s almost like the IP is free, and [there] can be a bottom-up approach or top-down approach.”

“If you go buy an Avengers’ Iron Man toy, you’re just buying it,” Liu said. “But here, as you interact, you’re actually building up the collective IP.”

Netz compares it to traditional IP, which has historically involved one-sided exchanges, and feels the web3 approach, involving NFTs and collective ownership, is “exponentially more rewarding and has a better value proposition for end consumers.”

However, Netz acknowledges that from a business point of view, the NFT model on its own is not positioned for longevity. “At its core, it creates a community and underlying base that’s useful with huge value. But when you’re looking to grow to a multibillion-dollar business with millions of consumers, you’re not going to do that looking inward — you have to look outward.”

In the near term, the company plans to take its brands to other media, including TV, films and, in particular, games, Netz said. He added that Pudgy Penguins has partnered with a company to build games on Pudgy World but did not elaborate further on what that would entail.

As NFT communities get bigger, holders may see a future where they can independently license their items for merchandise, games, brands and more, Liu said. “It becomes a more community-centric effort,” Liu added. “This is the first step of many steps where IP and brand gets pushed out by leveraging the community in a symbiotic [way].”

Eventually people will look at the crypto space “less like a casino and more like being a part of a brand or company in a deeper way,” Netz said. “If you could own a piece of Mickey Mouse, would you? For us, we’re trying to take our Pudgy Penguin and make it our Mickey Mouse.”