NFTs Need to “Shift Away From Ponzinomics”

Luca Netz isn’t afraid to name his photographs.

Contemporary off the headline-grabbing success of the Pudgy Toys launch, which raised greater than $500,000 in two days, the Pudgy Penguins CEO has his sights set nicely past merely dominating the Amazon toy charts.

“I believe once we discuss subsequent, I would be the face of NFTs, and I’ll be on the trail to being the primary NFT undertaking on this planet with the best ground value,” he says. “That’s actually my goal. I imagine we are going to accomplish that aim.”

Whereas nonetheless an bold assertion right this moment, it could have sounded farfetched only a yr in the past when Pudgy Penguins was reeling from a scandal that drained the treasury and tanked the ground value. The undertaking’s subsequent revival has been one of the vital spectacular comeback tales the NFT area has ever seen.

In a candid interview, Netz particulars the highs and lows of bringing Pudgy Penguins again from the brink, his plan to dominate Web3 IP licensing, and why Pudgy Toys is a Malicious program for mass adoption.

Matt Medved: Take us again to April 2022. The Pudgy Penguins undertaking actually appeared lifeless within the water. What was it that appealed to you and gave you the conviction to buy it for 750 ETH? ($2.5 million on the time)

Luca Netz: I used to be pissed off with NFTs. I used to be upset due to how a lot cash folks had raised from the neighborhood and enterprise and the way little output they delivered. All people was honing in on key phrases like they’re the subsequent IP, the subsequent nice sport, or the subsequent nice innovator in music. And it appeared like no person was doing something. Somewhat than complaining, I mentioned, “This can be a good alternative to guide the cost in an NFT undertaking that I in the end imagine is the way forward for expertise and gathering.”

750 ETH for @Pudgy_Penguins by the NFT degenerates. Make your transfer @ColeThereum

— Luca Netz 🐧 (@LucaNetz) January 6, 2022

I purchased it for $2.5 million, however you’ll be able to’t actually fundraise and say, “Hey, I’m going to do an NFT undertaking, elevate 100 million bucks, and curate and domesticate that neighborhood.” You both have it or don’t. On this state of affairs, I used to be lucky sufficient to purchase it. However these items matter in crypto and its historic significance and what it did to actually kick off the area. That run in the summertime of 2021 set the tone for a craze that in the end has led us right here. And you may’t simply purchase that. That’s unquantifiable advertising and marketing {dollars} and cache and provenance and significance.

So that you have a look at my ability set as an elite product mover and an elite marketer alongside what’s for my part the perfect Penguin IP ever made. They’ve all the time made Penguins ugly for some purpose, and Pudgy Penguins are cute… so you’ve this conventional IP that fills a vital void as a result of proper now, there isn’t any premier Penguin model… It has all of the elements to achieve success historically, which excites me. It’s the premier case examine for constructing a model in NFTs, Web3’s first actual model, and first actual IP enterprise. And that’s in the end what we wish to create.

There was loads of pleasure whenever you took over Pudgy Penguins, however there’s positively a fast shelf life to that in Web3. Holders need outcomes. What had been the most important challenges that you just confronted in turning this factor round?

The arduous half for us was actually these black swans that the universe dealt us. At one level I truly needed to dig into the checking account and put extra money into the enterprise, greater than the precise buy. As a result of even our worst projections didn’t account for NFT quantity getting minimize 95 %. We didn’t account for royalties leaving. And we didn’t account for Ethereum taking an 80 % haircut — all on the similar time. 

I knew royalties weren’t the income drivers for this enterprise. Royalties are EBITDA patterns, in order that’s how I have a look at them from a income mannequin. However I believed royalties may maintain us up till we bought our actual income drivers going. 80 % of the staff didn’t receives a commission for 11 months. That comes with inner friction and expectations… I’m grateful they caught by way of, and we had been in a position to make it on the opposite facet.

I don’t assume we may’ve justified shopping for @pudgypenguins for $2.5M if we didn’t have the protection internet of royalties. We purchased the undertaking with no cash within the financial institution, and we knew royalties may maintain us till we bought our shopper product line and content material verticals going.

— Luca Netz 🐧 (@LucaNetz) February 18, 2023

Was there a second whenever you felt the pendulum swing?

I’ll attribute this to my finest pal within the area. His identify is Frank Degods. He gave me a training lesson someday the place he mentioned he was so impressed with what we had been doing, however I wasn’t doing a superb job galvanizing and spreading that imaginative and prescient, which is absolutely my job as a CEO. And inside these first couple of days of him telling me that began the uptrend for Pudgy Penguins, which was being a bit extra vocal. 

In Web2, I by no means actually talked about my successes. I simply confirmed them. I let the outcomes do the speaking. That was all the time my mantra as a result of I grew up in LA, and all people in LA is both mendacity or a belief fund child. I’m a doer. However he confirmed me that it’s a mixture of each, the speaking and the doing. So all I needed to do was muster up the braveness as a result of I’m an introvert. That was an enormous second as a result of many individuals on this area create superb issues however fall on deaf ears as a result of they don’t have a champion of these merchandise.

A lot of Web3 focuses on Twitter, however Pudgy Penguins has been rising quick on Instagram and past. How do you concentrate on totally different platforms for getting this IP in entrance of a wider viewers?

Now we have to regulate our personal future… If I hold my eggs in a single basket, I’m inevitably compromising my future, this firm’s future, and our holders…. Being subjugated to variables I can’t management is a idiot’s sport. And I’ve no real interest in taking part in a idiot’s sport. I’ve each curiosity in taking part in a clever man’s sport, and a clever man would diversify his consideration.

Within the subsequent yr, I wish to have the most important Fb, YouTube, TikTok, Instagram, Snapchat, and GIPHY of anyone within the Web3 area. After we try this in a yr, we go and sort out the normal IPs.

What’s the imaginative and prescient behind Pudgy Toys? How did you are taking it from thought to completely realized success?

On its face, to the common particular person, it’s a cute, cuddly, Pudgy Penguin. However to the Web3 world, it’s a Malicious program for getting folks into Web3 with out them figuring out. There’s a beginning certificates connected to it with a QR code. You scan it, and it provides you a redemption code and factors you to pudgyworld.com. You join an account by way of e mail and a password, which provides you a custody pockets. Inside a couple of minutes, you should purchase and promote NFTs and put them in your perpetually Pudgy Penguin in real-time. In case you determine to mint it, it’s a dynamic soul-bound NFT. So the precise Penguin itself is additive to our core assortment, not dilutive. To have a tradable Pudgy Penguin asset, you will need to go to Ethereum and spend large {dollars}. But it surely nonetheless makes folks snug with that digital id and part of the neighborhood. 

If you wish to introduce a pal or member of the family to the area, proper now, you’ll have train them about MetaMask and OpenSea, which sounds rigorous and time-consuming. Now with Pudgy Toys, all it’s a must to do is purchase them an motion determine and observe the directions. Inside 5 minutes, they’ll perceive the great thing about Web3. 

Now if you happen to spend an additional 10 minutes on Pudgy World and also you go and promote a trait, there’s been some superb anecdotes up thus far of individuals spending $60 value of toys and promoting $230 value of digital trades. Making that mechanism sticky is the arduous half right here and we’re working arduous to create that suggestions loop to make sure that it’s enjoyable and fascinating. However a world the place someone spends $20 on a toy and makes $30 again is a world the place everybody goes, “Holy shit, what is that this?” They’ll in the end be taught that it’s an NFT and the probability of them turning into a Web3 shopper may be very excessive.

“The elephant within the room right this moment is NFT holders need financial achieve.”

Luca Netz

In a post-royalty world, how do you assume community-based initiatives can sustainably create these new income streams whereas nonetheless additionally driving worth again to their holders?

The elephant within the room right this moment is NFT holders need financial achieve. Most founders don’t wish to speak about it… however I perceive as a result of I used to be an NFT collector. I do know what they need. They need financial achieve. And the way are you going to offer them financial achieve right this moment? Nicely, right this moment it’s by way of airdrops of tokens and NFTs, that are liabilities. The most effective recommendation I bought coming into this enterprise was to keep away from creating liabilities for your self. So I’ve too many collections. I purchased Pudgy Penguins with Lil Pudgys and Pudgy Rods already current. So I’ve no room to create extra NFTs right this moment. And tokens are fairly far out as a result of I don’t assume my NFT market cap has justified and warranted a token airdrop.

So in the end, I can’t give financial achieve by creating imaginary objects out of skinny air and dropping them. So the one method I may give financial achieve proper now’s by way of the ground value going up, which I can also’t management exterior of me simply executing and displaying up every single day. The one different choice is to create an actual enterprise and share that income… by way of licensing as a result of [holders] personal their digital asset. As the corporate, I’ll license that IP from them and use it within the merchandise and instruments that I make, and that’s a scalable method of financial achieve. If we actually need this area to work, we must shift away from the Ponzinomics. We must shift away from creating issues out of skinny air. They’re good and I’m certain I’ll do them in some unspecified time in the future. However that can not be the all-in-be-all. That simply needs to be a characteristic.

“If we actually need this area to work, we’re gonna should shift away from the Ponzinomics.”

Luca Netz

How does IP licensing work? How do you propose to scale it with the growth of Pudgy IP?

Proper now, the toys use a licensing royalty, the place they receives a commission in perpetuity on an annual foundation. So on the finish of yearly, we’ll consolidate the toy skews’ income, and we’ll pay them out accordingly. Transferring ahead, we’ll in all probability do it by way of non-exclusive upfront funds. So I’ll pay you for the non-exclusive proper to make use of your Pudgy Penguin and an upfront fee on what the deal is value. And I’m simply going to ship that on to your pockets.

We developed a platform known as Overpass, which we’ll launch on the finish of June, perhaps the start of July… [that] solves Web3 licensing at scale…. Licensing is the bottom hanging fruit by way of utility initiatives can present their holders, and Web3 licensing right this moment is a ache within the ass. I discovered it as a result of we had been the primary main Web3 firm to license IP straight from holders for a mass-market product… Web3 licensing ought to be executed the Web3 method, which is a few clicks of a button. Web3 extracts a lot of the friction, and it has but to be abstracted for the licensing enterprise. So we made this licensing market the place if you happen to’re an organization and also you wish to license IP, you make a deal. You challenge the collections you need on board, and they’ll submit proposals of their character and what they need paid for it. With a few clicks of a button, they’ll ship the cash and signal the paperwork. It’s all executed on-chain… I humbly assume it’s one of many three most vital items of expertise that any NFT undertaking has ever shipped.

This interview transcript has been edited for concision and readability.

For the complete and uncut interview, hearken to our podcast episode with Luca Netz.