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Off Chain 9/28/23: The web3 Brand Finally Reaching the Mainstream
246 Plays1 year ago
In this week's episode, we discuss how Pudgy Penguins have been leveraging their IP to truly build a brand that reaches a mainstream (non-crypto) audience. Also, we take a look at the latest setback for UK crypto holders.
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Transcript
Introduction to 'Off Chain' with Matthew and Austin
00:00:12
Speaker
Hello and welcome to the Decrypting Crypto Podcast. It's September 28th, 2023, and this is Off Chain, your weekly recap of the biggest stories in the crypto space. I'm Matthew Housebarbie, and as always, I'm here with Austin Knight. How are you doing, Austin? Doing well, Matt. Joining you from Brazil this week, so I've been soaking up the sun, drinking caipirinhas. I'm amazed that I actually made it to our recording time today.
00:00:38
Speaker
You and me both, uh, no, very, very jealous as our ex in, in fairness, extended summer has kind of began to Peter out, but you know, we're getting into October over here in the UK. It's been pretty reasonable at least. So I can't complain a whole lot, but, uh, yeah, not as, not as nice as the, uh, Brazilian sunshine. I imagine. Ah, it's always nice to have a, have a break from the fricking.
00:01:07
Speaker
hundred plus degrees of heat in Texas. I'll tell you what, man, it gets out of control. But yeah.
Major Crypto Stories Overview
00:01:17
Speaker
Well, hey, speaking of heat, we are bringing the heat today with two interesting stories in the crypto space. Let's dig into it. Yeah, let's let's do it. We've got something.
00:01:28
Speaker
That's not super positive for the UK that we're going to, we're going to dig a little bit into, but on the other side, we're going to talk a little bit about the web three space. And I guess like while NFTs are down badly across the board, I think there is one project that is a, an example.
00:01:49
Speaker
of actually bridging the gap between the masses and the web3 space and showing an interesting business model. So let's dive straight in.
Pudgy Penguins: NFT Success to Retail
00:02:12
Speaker
So we're going to talk a little bit about a somewhat popular NFT project. You may have heard of it. It's called Pudgy Penguins. And the reason why we're going to talk about, yeah, you know, it's just another normal day, right?
00:02:29
Speaker
And the reason why we're gonna talk about this is because they've just landed a pretty significant deal with the world's largest retailer, Walmart, to sell toys across two thousand of their stores.
00:02:46
Speaker
That is no mean feat. That is a big deal. What the hell has this got to do with NFTs and Web3? Well, let's kind of dig into this a little bit because I think this is a very interesting
00:03:03
Speaker
situation and I actually think that while the whole of the NFT space is really down quite bad and has started to have a bit of an identity crisis, if I'm completely honest,
00:03:18
Speaker
This is an example of a real brand being built here and, most importantly, monetizing outside of just the realms of speculative crypto investors.
00:03:35
Speaker
So let's just start with- When I hear real brand and moving the space forward, the words pudgy and penguin were not what I expected us to be talking about. Well, you know, we only cover the big stories here. But actually, you know, this is a pretty big story. And the reason why I really wanted to talk about this as well is it's really easy to dismiss this as a silly thing.
00:04:02
Speaker
And it actually just isn't at all. And I'll explain why I have that take care. Now, is what I'm gonna tell you really going to showcase the value of NFTs? Not so much, but I think that this is gonna at least
00:04:28
Speaker
be an eye-opening example of how a Web3 brand can be built. So let's just start with a bit of background because many people listening, unless they've been in the NFT space are probably not that familiar with Pudgy Penguins. They launched as a PFP collection back in July of 2021 in the midst of the kind of NFT hysteria. They have a collection of
00:04:54
Speaker
8,888 NFTs, and it was founded by a couple of college students, Cole Villaman and Clayton Patterson. And they had set out this big, ambitious roadmap promising a bunch of stuff. And really the whole focus of Pudgy Penguins was to be this kind of, I guess,
00:05:21
Speaker
I guess they set out initially to be a brand that really appealed to kids and they were looking to bridge the mainstream with some of this. They'd set out Roadmap, it was talking about they were gonna mint a token, of course, but they were also gonna produce a children's book and create a whole virtual world game revolving around the Pudgy Penguins. If you haven't guessed already, they are kind of just cute little penguins, these PFPs.
00:05:51
Speaker
But let's just say this wasn't the most stable leadership that has ever founded a project. And that takes a lot of doing for even the NFT space for me to make that statement. But in the beginning of 2022, like around about a year later,
00:06:11
Speaker
Both the co-founders were ousted from the project. There was a governance vote in Discord. The community had like a ton of uproar at the time. Basically, the founders had failed to complete any of the goals that they laid out. They obviously made a ton from the initial mint of the NFTs. They pretty much shipped nothing. And a few big voices in the community had accused them of just basically draining the company's treasury, paying themselves out.
00:06:37
Speaker
a bunch and not really delivering anything back, as has been the case through many, many PFP projects. And then something happened in April of 2022. And it's not actually something that we've seen a whole lot. And that was that the Pudgy Penguins, IP, and all of the associated assets, was acquired. And it was acquired by an individual by the name of Luca Netz of Netz Capital.
00:07:05
Speaker
um pretty young guy but his whole background was in e-commerce and he'd done a ton of stuff on the retail side of things he'd had and has still got a few successful pretty large businesses uh some of which where he's managed to have like products in
00:07:26
Speaker
you know, these tiny little retail outlets called Target. So pretty big deal to get merchandise, homegrown like merchandise into huge stores like that. That is very, very difficult. And that's his whole bag. He bought the Pudgy Penguins brand and IP for 750 ETH. So it's around about $2.5 million at the time.
00:07:48
Speaker
And the goal from the beginning was really to start building out this Pudgy Penguins brand and I think appealing to the
00:08:03
Speaker
I guess like kind of the kids side of the the market but I think also still some of that web 3 core and what they did is earlier this year they launched their line of plushy toys called pudgy toys so um the the toys themselves they're just kind of
00:08:21
Speaker
They're based on the designs of the Penguin NFTs. But each toy has a paired NFT to it. So it can be accessed as like a QR code on the toy. It's very optional. They don't use the term NFT, kind of Reddit star, right? It's like a collectible. But this is just like a value add on top of this. But what does it do? It gets you access to Pudgy World, their kind of online portal.
00:08:50
Speaker
And when you sign up, if you're not like a crypto native, it creates a crypto wallet for you in a very abstracted way, right? So you're not worrying about all of this and you get both a soul bound and a tradable NFT inside your crypto wallet.
00:09:09
Speaker
But so the NFT that you get, one of them is like a unique birth certificate. And that allows the user to claim like unique traits for their birth certificate.
00:09:23
Speaker
forever pudgy character inside pudgy worlds is kind of like their their digital version so they've tried to really just make this like a fun enjoyable game it's not about speculating on assets these
00:09:39
Speaker
This really is just about connecting kind of these toys, this cute, fun little brand with a digital experience as well, like we've seen many, many times outside of the web through space.
00:09:54
Speaker
I remember at the time, huge amount of skepticism of who the hell is going to buy these toys. NFT collectors probably don't want like soft toys. Turns out the brand was pretty strong. They actually made half a million in sales. They sold 20,000 units in the 48 hours following their release. They did all of these over Amazon. And when you actually look at the toys, I've seen a lot of like
00:10:19
Speaker
stuff that's been created by, I mean, the quote unquote biggest brands in the crypto space like, um, you go labs and co and it's been pretty crappy. These look very legit. Um, they're, they worked with like a really, a really good, uh,
00:10:40
Speaker
of product and merchandising company that work with a bunch of just like regular toy brands. And they have kind of these plushy toys. They've launched multiple lines now. They have like the figurines, kind of like the pop type figurines as well. And what's kind of clear here is they are not aiming directly at the crypto market. The focus is to just sell to regular people, leveraging the brand IP, and then just
00:11:06
Speaker
add in these kind of Web3 elements as just additional to this. So that's the background. Things have been ticking on nicely. And now comes the Walmart deal. Walmart is the world's largest retailer. And it is not easy to get your merchandise in Walmart, let alone across a significant number of their stores.
00:11:32
Speaker
they've actually managed to strike an agreement to have their pudgy penguins toys, the pudgy toys across 2000 stores in the US. So the price was a range of $2.99 to $11.97. There's 26 different toys, including, I think there's like their plush buddies, clip on plushies, igloo collectibles, and then those action figures I was talking about.
00:11:57
Speaker
And what they've also done is they've done like a few of these toys in the range that are just exclusive to Walmart. And I saw an interview with the VP of merchandising for toys at Walmart and Brittany Smith, she said, Pudgy Penguins is bridging the gap between our physical and digital worlds of play for kids in a really engaging way. And their price point is right in line with the goal of providing everyday low prices.
00:12:22
Speaker
a little bit of a sales pitch in there as well. But I think the TLDR area is clearly this brand that they're building is attracting attention. People are relating to it just in the regular world. We'll see how well the sales go in Walmart, but it clearly feels like the leadership here behind this project
00:12:46
Speaker
is figuring this out. And they're actually generating real revenue leveraging the IP. Now the NFT floor price is up over one ETH since the start of the week. So that's up to five and a half ETH from 4.5 at the start of the week. And the reason why I'd say this is I'd go as far to say that this is the first example of Web3
00:13:14
Speaker
truly making it into the mainstream with a revenue generating model. And I think that's something that this team should be proud of is clearly just the beginning here. And I think from here, what we're going to see is a ton of
00:13:31
Speaker
NFT PFP projects try to launch toys thinking that that's just the answer to their prayers and realizing very quickly that that is not an easy thing to do. The real question comes around the NFTs, the original NFTs. I've seen loads of stuff on Twitter where they're like, oh yeah, all this revenue is going to generate flow back into the NFTs. It's just not
00:13:55
Speaker
the case I mean the I mean that would first of all that would make it the security so let's not go down that that rabbit hole but
00:14:02
Speaker
Um, there is this disconnect between these NFTs and I think ultimately, you know, that is a piece of the IP, but the story here is this is a brand and they have lots of different ways that they utilizing the IP that they own. You've got this NFT collection that they've, they've, they've launched. You've got this digital world. I think just the whole operation seems very professional, Austin. Like when you look on the website, all of the marketing material.
00:14:28
Speaker
It's like, you know, it feels like a real kids brand to say as a father to a three and a half year old, I know kids brands intimately, intimately well. And like I look at this and I'd be like, yeah, like my daughter would love this. Like it just is like clearly like the thing. And I can imagine where they're going to go from this. Like it goes well. They have like books, you know, from there. I imagine they'll probably explore like
00:14:57
Speaker
little tv series or miniseries like that so you can kind of see how this whole thing plays out and they've got stories and stuff that are intertwined but um yeah i just thought this is a really positive sign that shows and paves the way for how
00:15:16
Speaker
IP in the space can be leveraged. Is this the killer kind of use case for Web3? No, I don't think that's the case. Does this mean PFP projects are going to flourish? No, I don't. But I do think this is an example of a Web3 brand onboarding non-crypto natives in a pretty value-add, seamless way. Yeah, it's nice to see it make its all the way to such a great retail stage. And to your point, Matt, I mean,
00:15:43
Speaker
The toys themselves, multiple sizes, multiple different materials. It's a complex product that they've made. It doesn't look like it's amateur. And their value prop is that they have over, or that they have exactly 8,888 unique collectible penguins with proof of ownership. And the website is like super well done. I like the sort of connection between their different products across the line.
00:16:12
Speaker
ranging from the little key chain toys all the way up to their bigger plushies and even.
00:16:19
Speaker
like digital things like gifts with the unique penguins dancing and things like that, to t-shirts. You can see they're definitely building out something interesting here and one of the things that has been wild to me about this has just been kind of, you know, you and I have actually been talking about this project for quite some time. Didn't always take it very seriously and it's interesting to see how it's evolved so quickly, especially under its new ownership.
00:16:44
Speaker
Yeah. And this is a project that was on the brink of just dying. And you've got to kind of take your hat off to Lucanette's. He saw an opportunity and he's executed in a very short timeline as well to go from, yeah, within like around a year, maybe a year and a half. And he's in Walmart, right? I was like,
00:17:07
Speaker
That's a lot. It's still a long way to go. They still need to make that a success. Make no mistake, this will be a trial with Walmart. You don't just get kind of a free lunch there. You have to keep earning that spot. But yeah, I think it's very positive. And I look at this and I'm like,
00:17:26
Speaker
Most NFT projects have launched physical products, so they're paired with an NFT, but they're just swag. This is not swag. These products are front and center of this project and this brand, and I think that's the difference. This is like a consumer product that they are building, and they're building a story around.
00:17:48
Speaker
Well, it's sort of a flipping of the priority, right? I think that the main part of their story is the physical retail product and the NFT is kind of a secondary aspect of that, which is the opposite of what we've seen with most NFT projects that bring physical products to the world.
00:18:08
Speaker
100%. Yeah. They're leaning into being an actual like product fast company, which is what you need to do if you want to be successful with a product. Um, and then, you know, yeah, the, the web through experience is additive, ultimately optional as well. And, uh, I think that's, that's what makes this pretty interesting. All right. Let's jump into our second story of the day.
Chase Bank UK's Crypto Ban: Impact and Reactions
00:18:32
Speaker
Chase bank UK has banned crypto transactions.
00:18:37
Speaker
So you may be familiar, especially if you're Matt and you're based in the UK, with JP Morgan's retail bank, Chase Bank UK. They are now stopping British customers from buying cryptocurrencies starting on October 16th. And this includes buying digital assets on a Chase debit card.
00:18:59
Speaker
and transferring money to a crypto site from a Chase account. This is kind of wild, right Matt? It looks like this is going to affect all of their 1.6 million customers. And as far as I understand, JPMorgan launched Chase Bank UK as a mobile app-based service in the UK about two years ago. So it's been a short time running and they're already going through this process of banning crypto transactions.
00:19:27
Speaker
Yeah, and I think, yeah, they launched two years ago. It's really, they've only just started, in all honesty, this past year, starting to like really get the word out about Chase. Chase is obviously enormous in the US, especially on the West Coast, right? Nowhere near as big in the UK yet, right? They're like, you know, JP Morgan, pretty big company. And Chase is a big brand globally. This is really,
00:19:57
Speaker
It's disappointing, but what I will say is, this is not just Chase that are doing this in the UK. The difference here is that Chase are openly saying and setting the precedent here of saying like, hey, yeah, no, just anything digital assets, we're blocking.
00:20:13
Speaker
The problem that is happening in the UK, and there's been a lot of discussion, not just in the world of crypto, but the ability for banks to just close accounts, to block transactions without really any explanation. And I personally,
00:20:36
Speaker
as someone who has been in the crypto space for a number of years and spent a big chunk of the past few years being paid in my salary in crypto. And yeah, I've had two separate occasions where our bank has just closed my account completely with no explanation. Wow. Oh my gosh. I've been completely debanked. In one of those situations, I banked with the banking question for 15 years.
00:21:02
Speaker
And after a couple of modest-sized transactions from a well-known crypto exchange, I got a letter in the post that came to me along with a check for my balance that said,
00:21:18
Speaker
Yeah, your bank account is being closed and you can never bank with us again. Basically it was the TLDR. You will not be given an explanation. And when I tried to call up, et cetera, you know, it was like, no, we can't, we don't need to give you an explanation. This is what's happening. It's a huge issue in the UK. Wow. I'm real. And for you, Matt, like in the UK, do you have a lot of
00:21:45
Speaker
banks.
00:21:58
Speaker
shaky problem, right? 100%. So the banking system in the UK is just, it is almost the opposite of the US in that pretty much every bank is a national bank, right? So you have a very small number. Like there is no regional banks in the UK. Um, so in, in the sense that I remember when I first came to the US and I'd like, I got, uh, I think like a Charles Schwab account, right? Something like that. Still a huge bank, but then it was like, Oh, I can't.
00:22:28
Speaker
accesses from certain areas of the US because they don't have a presence there. It's foreign to anyone in Britain because everything is a national bank. But yeah, you're talking... I mean...
00:22:42
Speaker
okay, there's probably like a little tail end. I'll be generous and say there's 15 banks to choose from. Something like that. So yeah, like it's very, very difficult and it creates real problems when you're thinking about just, okay, what I'm going to send a transaction. Whenever I fund my account, and this I will say is in any
00:23:06
Speaker
exchange I've ever done this. Whenever I put cash in, I get a phone call immediately from my bank asking me to explain why. Whenever I take money out, I get a message very, very quickly and everything gets frozen. And it's just like, it's crazy. And I've experienced this over multiple banks. Wow, absolutely wild. I mean, to your point, I was reading, yeah, this is not the only case of a UK bank
00:23:30
Speaker
cracking down on customers buying crypto. Nationwide and HSBC recently applied daily limits for buyers and restricted credit cards for making crypto purchases. And even outside of the UK, Santander, which is a Spanish bank, last year said that it would block UK customers from sending real time payments to crypto exchanges. So it makes you wonder, why are they doing this? Well, in the case of JP Morgan's Chase Bank UK, which this is the most recent occurrence of this,
00:23:59
Speaker
They cited quote an increase in the number of crypto scams targeting UK customers and they said that it was quote done to protect our customers and keep their money safe. They continued to say quote crypto scams are part of a wider epidemic of fraud.
00:24:16
Speaker
which accounted for more than 40% of all reported crimes in England and Wales last year. I think that 40% is probably referring to fraud, not to crypto scams, right? I mean, at least I hope not. And it's just the irony in some of this as well, that JP Morgan, one of the largest asset managers in the world, that almost certainly
00:24:38
Speaker
facilitate the purchase of Bitcoin and Ethereum and will no doubt have a Bitcoin ETF when everyone eventually has that in the coming year or so for this to be the case. And this only makes the
00:24:54
Speaker
problem around scams worse because then people have to figure out other alternative ways to on and off-ramp. Like, what are you going to do if you have a big chunk of your assets held in crypto? An enormous percentage now of
00:25:13
Speaker
the US and the UK at least own some cryptocurrency, just blocking the rails just causes more and more issues. And I think that is a problem. I think the reality here is that the retail banks don't want to be the ones that have to figure out this challenge. And instead of actually tackling this and doing a better job of filtering out
00:25:38
Speaker
What is a fraudulent, what is not fraudulent transaction? I mean, literally transactions coming from registered, regulated crypto exchanges. Why would you possibly need to block those? These are regulated entities. In the UK, we have very clear regulation, right? Like you have to have.
00:25:58
Speaker
the correct licensing to operate in the UK, whether that be an EMI license or a VASP license, you have to have those. So we have these in place for a reason. Why would you need to then create this next level of regulation at the retail banking level that's just going to cause more and more problems for everyday people and freeze them out of their assets?
00:26:25
Speaker
As you can probably tell, it frustrates me a lot. I think it just sets the UK back a huge amount, especially as the...
00:26:34
Speaker
I am hesitant to call it the leadership, the government in charge of this country. As inept as they are, they've made many public statements that they are going to be investing in and making UK a place that is crypto-friendly. I am yet to see any signs of that being the case. And this just further cements that with one of the world's largest financial institutions.
00:26:58
Speaker
simply just putting a big kind of FU in the face of all of that, that UK customers. Yeah, it's really unsettling. And I would say, you know, oh, well, if one bank isn't going to accept crypto transactions, then that's an opportunity for another bank and the free market will figure it out. But we're not talking about a free market here. We're talking about a very controlled, regulated, nationalized space. So
00:27:24
Speaker
It does make you wonder, you know, if all say 15 or 20 in the long tail banking entities in the UK were to go in the same direction with this, you know, what kind of option that leaves you with. And I think you're right. Actually, what it does is it exposes you to even more risk and fraud. So.
00:27:41
Speaker
wild to see this happening. And I'll be interested to see if they reverse course in the coming year or two years as these sort of too big to fail banks start getting their share of the pie with the Bitcoin ETFs and everything like that.
00:27:58
Speaker
Well, that's going to be the thing, right, is all of these big retail banking institutions within the next five to 10 years are going to be major players in the crypto exchange world, right? You know, they're going to be having crypto offerings. They will almost certainly be supporting stablecoins, especially when we see CBDCs entering into their books. So all of this
00:28:24
Speaker
I mean, it's pretty easy to get your conspiracy theory hat on here, right? But we'll hopefully see a change in direction in this in the next year or so. But until then, it does create some real challenges.
Conclusion and Disclaimer
00:28:41
Speaker
We'll keep an eye on things. They're not the only ones doing this in the UK. It has to be said, and there's more guidance and regulation coming in the next two years with the European-wide MECO license, which hopefully should get banks feeling a little bit better about some of this with more standardized guidance across Europe. So we'll see how it goes. Austin, it's been a pleasure. As always, let's wrap this thing up, and I'll see you next week.
00:29:31
Speaker
The contents of the Decrypting Crypto podcast should not be used and are not intended as investment advice. Please do your own due diligence before making any investment, cryptocurrency or otherwise.