Pudgy Penguin CEO discusses how to overcome financial difficulties and thoughts on Token

Compile | BlockBeats

Editor’s note: This conversation mainly discusses how LucaNetz and his team overcame difficult challenges in the early stages of Pudgy Penguins, including financial difficulties, investor rejections, and community distrust. It also discusses the ecosystem of Pudgy Penguins, tokens, and its future development. It also touches on the reasons why Pudgy Penguins chose Solana over other chains, and expresses the intention to change the Solana ecosystem by promoting a cultural phenomenon.

The following is the original content (for ease of reading and understanding, the original content has been edited):

Host: LucaNetz is like the Kobe of the Web3 crypto field. Everyone is asking, how can we be like LucaNetz? How can we become world-class? How can we become legends?

LucaNetz: To be honest, I just took the credit. A few days ago, before we announced PENGU and other projects, I had a chat with the team. At that time, I said that I have a group of the most talented people around me, so this is not my credit.

I am good at communication and being a good community leader. But all the behind-the-scenes work you see is the result of Peter, Lorenzo, Vadon, Jennifer, and other team members. The Pudgy team has a total of 60 people, and they deserve the credit, while I just took some honors.

Host: Luca, I knew you before the team had 60 people. How do you control everything? This industry is very stressful, it’s really tough. Can you give some advice on how to stay focused? After all, you can become the ‘Kobe’ and ‘LeBron’ that drive the public acceptance in this industry, it’s definitely not without reason.

LucaNetz: We are very ambitious, just like the analogy of ‘Kobe’ and ‘LeBron’ as you mentioned. This is our biggest advantage, although some may see it as a weakness, I can understand this perspective. We have a strong competitive spirit and aim to be the biggest and the best. We believe we deserve such achievements, and so does our community. Over the past few years, we have worked hard to prove ourselves, and now it is time to stand out.

Years ago, when we entered this industry, we were determined to prove ourselves. We invested millions of dollars, staked our reputation, and put in blood, sweat, and even tears. Friends betrayed us, and we experienced all kinds of traps and deceit. We gritted our teeth and weathered those storms, enduring every possible test.

We are so eager to succeed, not only for ourselves and the company, but also for the community. I really hope to bring better things to the community, which is what I most want.

You know, the story of penguins, if you are not familiar with it, they were actually laughed at and suppressed at the beginning. Many stories about penguins are somewhat similar to my experience. We have been underestimated, ignored, and even laughed at since we were young, becoming a laughing stock - at least that’s how I feel. Maybe the fact is not so exaggerated, because my childhood was okay, but I always feel that we are not taken seriously, and there is a sense of pressure on our shoulders.

I think Pudgy’s story is the same, but it’s magnified through these penguin NFTs. So I hope these penguins can feel the same feeling when I succeed: I made the right decision, I am the smartest, I have faith. Even when everyone is questioning and taking sides, the penguins have chosen the right team. This recognition is more important to me than anything else, and I know this value will be rewarded.

This mentality largely stems from our competitive nature. We all loved sports and competition when we were young. I hate failure and love victory, and our executive team has the same spirit.

Our era is now, we already have all the elements of success, now it’s time to take a chance and prove it to the world. This is the cultural phenomenon of this cycle. We respect and appreciate those who have paved the way, but now it’s not their era, it’s ours.

What is Pudgy Penguins

Host: This is the Luca I know! You do mention the team’s efforts, but this is why we call you the “LeBron” or “Kobe” of the encrypted Web3 industry. I hope people can send this message to their grandmothers, friends, and cousins. Everyone is asking about meme coins, and they see them on TikTok, Instagram, and social media. So, if you want to explain Pudgy Penguins and the entire ecosystem to your grandmother, what would you say?

LucaNetz: First, we need to understand the mission of Pudgy Penguins. We have two missions: first, to become synonymous with penguins worldwide. When people think of penguins, I want them to immediately associate them with Pudgy Penguins; second, to become the mascot and representative of cryptocurrency.

Our way to achieve these two goals is to create a positive and beneficial brand, produce products that people love, and create memories and emotional connections that can affect people’s lives around roles. This is a brand that can make people feel positive energy. Through such brand value, we will become a synonym for global penguins and representatives in the cryptocurrency field.

If we achieve these two things, it will be a great thing for the industry as a whole. Especially for the IP (Intellectual Property) industry, it is in dire need of something fresh and creative, and Pudgy Penguins is just that. At the same time, and more importantly, the cryptocurrency space needs such a breakthrough even more. Cryptocurrencies still have taboo overtones that make people feel unapproachable, and Penguins is the only IP that everyone can accept and identify with, whether you are 5 or 60 years old, regardless of race, gender, occupation or background, Penguins can be loved by everyone. It’s universal enough that there’s no weirdness or fussiness—it’s just the cutest penguin, and everyone loves it.

The story of the penguin is also a classic “counterattack story” of cryptocurrency. All these factors combined make it a true cultural phenomenon. People may ask, is this token an ecosystem token? Or…

Host: Don’t worry, let’s not talk about tokens for now! The penguin itself is already special enough. Let’s start with the basics, such as NFTs. How do you connect NFTs with IP? In your ecosystem, there are not only NFTs, but also games and upcoming tokens. Let’s take it step by step, what are these layers?

LucaNetz: Okay, let’s look at this issue from the perspective of a funnel. I have been considering this approach from the beginning. The top of the funnel is demand, right? So what creates this demand? Is it the millions of fans on Instagram? Is it the millions of fans on TikTok? Is it the billions of views on Giffy every month? Is it the coverage of toys and millions of households? In short, the creation of demand and emotional connection begins at the top of the funnel.

And then, as you work your way down, initially, the middle part of our funnel is “Pudgy World” – from a toy buyer or an Instagram follower to a toy buyer, you’re going to switch to this blockchain-based experience, which is kind of like a back-end blockchain technology, plus some form of gamified front-end.

Host: Can you provide more details about this blockchain-based experience?

LucaNetz: Soon you’ll see the final version, and basically every toy we sell comes with a QR code. When you scan the QR code, you’ll get three to five digitized wearable NFTs. You enter your email address and password, enter “Pudgy World”, and you will be given a custodial wallet. You will then be able to redeem these NFTs by paying a fee. Eventually, for example, all you need to do is buy a toy for $5 at Walmart, follow the instructions, and in about 3 to 4 minutes, you can start collecting those digital assets on the blockchain.

How Pudgy’s CTO Changes the Game

Host: Why is this important? Why are people interested in having these assets on the blockchain? Why put it on the blockchain, especially the so-called ‘claw machine’ in the traditional toy industry?

LucaNetz: The importance of this is that you can access global liquidity through it, which can only be achieved on the blockchain. So the importance of this matter is that if Pudgy World can really succeed, I am really looking forward to the progress in the next few months. Because we can finally see if this mechanism can really work, even though it has been delayed for a year. And I think now is the best time because I think the popularity of penguins has never been so high.

But the key is that I can buy a toy for $5 and unlock three to five digital features worth $2 each. Then I can sell these digital features while keeping my physical toy. In other words, I spent $5 to buy a toy that unlocked digital features worth $10. I sell them and make back $5, while still keeping the physical toy. This model has the potential to disrupt the entire consumer goods industry, especially fast-moving consumer goods (FMCG) and loyalty reward systems.

If we can create a success story here, it will change the landscape of the entire industry and change the business model for everyone. That’s the biggest catalyst that I think can bring the big brands in. Retailers, especially Walmart, focus on “value for money”. For example, Walmart’s goal is to provide value to customers. If I could go to Walmart with the data (the multimillion-dollar data that backs up this theory), I would be the best value for money on their shelves without a doubt.

Because I can basically explain to Walmart that every customer who buys this product has a good chance of recovering the cost or making a profit. So they buy this toy, they almost never lose money. If this mindset can really be recognized by consumers, the product will definitely sell out quickly, and it may be sold out within an hour.

Of course, there are a lot of variables here, such as the state of the economy, whether the demand is appropriate. These factors have a higher probability of success in a bull market, and we are indeed in a bull market right now. So I think it’s more likely to be successful, which is pretty cool. Obviously, there are also a range of different variables in a bear market, and I don’t want to think too much about those.

Host: Let’s go back to those characteristics you mentioned. Can you give everyone a more intuitive understanding? Is it like Fortnite skins or other similar trading and profit models?

LucaNetz: I think it’s more like a digital collectible, just like buying Michael Jordan’s basketball card. I think it’s better to compare it to baseball cards or basketball cards. This is a better analogy because, you know, the difference between basketball cards and Pudgy Penguins NFT lies in brand awareness and emotional connection, and so on. But fundamentally, digital collectibles have more advantages over physical collectibles. Why? Because digital collectibles have no insurance issues, no counterfeiting issues, no friction in transactions, and no issues with transportation and storage, because the characteristics of NFTs themselves determine these advantages.

For example, the NFT of Pudgy Penguins and Michael Jordan’s basketball card are essentially the same, they are both collectibles. One is digital, and the other is physical. However, digital collectibles have many characteristics that physical collectibles do not have, such as being digitized.

For example, I collect artworks, but I don’t have any more space to hang more paintings, so the artworks I can buy are limited. However, I can buy NFTs unlimitedly because my wallet can hold an unlimited number of artworks. And my gallery can also be unlimited because it is digital.

This is the difference between physical collectibles and digital collectibles. NFTs inherently possess the attributes of physical collectibles, except that they are digital. So when we first entered this industry, everyone was actually quite confused and asked us what we were doing. My answer at the time was: I’m just doing what physical collectibles have always done. I just want to do it the same way as them because there is actually not much difference. Everyone is trying to redefine what digital collectibles should be.

What we need to do now is to make these digital collectibles align with physical collectibles in terms of brand awareness, brand affinity, emotional connection, etc. This is actually what we have been doing for the past three years: How to make ourselves extremely popular? How to become internet idols? How to create love and resonance around this brand? And then work our way back.

Host: I remember seeing Pudgy Penguins’ NFT collectibles for only $60. Now these NFTs are worth $100,000, which is really amazing! But I feel like we still have a long way to go. I have a bigger vision. But looking back at these achievements, it’s still very exciting. It’s not just the effort of your team, but also you and your vision. After all, achieving these milestones requires a lot of entrepreneurial spirit and business acumen. It would be very helpful if you could give everyone a brief overview of how you saved Pudgy Penguins and elevated it from a $60 asset to today’s $100,000.

LucaNetz: Simply put, we spent 2.5 million dollars to acquire this project about three years ago, with an initial investment of 500,000 dollars. The day we acquired it happened to be the beginning of a bear market, so we faced continuous decline from the start. Throughout the process, we have experienced many difficult moments and even came close to bankruptcy several times.

We haven’t taken a penny from the community, except for the programmable royalties, which were cut by 90% a month after our acquisition. We are just trying our best to do the right thing and create a project that everyone can like. What we try to do is create value for our holders and the community. Although it has been very difficult, we have been persisting.

Even in the past three months, many people still think that “Penguin is dead, it has passed its golden age”, and they think I don’t know what I’m doing. In fact, there are many stories in between, I can share with you. We have now entered 10,000 retailers, the most famous of which are Walmart and Target. We have also done a lot of joint cooperation, such as cooperation with Vandy, and recently we have also cooperated with Pokémon, which are all very cool.

Our video views on social platforms have exceeded 50 billion, with 40 billion views on Giffy alone. This is very huge, so obviously through MEME dissemination, I think no native IP of cryptocurrency can spread to the ordinary world as widely as we do, except for Doge. We have many necessary conditions, such as a large number of users and opportunities for change.

I don’t know if you’ve seen the performances of Pudgy Kindness or Kind Pango on TikTok. We changed the usernames of these users, and although the content is simple, we are really changing people’s lives on that channel. Like 10 videos bringing in 5 billion views, it’s really a beautiful story. I want to represent this industry to the best of my ability, do as much good as possible, improve people’s lives, and set an example worth following. Of course, we are not perfect, we have made mistakes, but we will do our best to lead this industry.

Misunderstandings about cryptocurrency

Host: What do you think is the most common mistake people make when discussing the cryptocurrency and Web3 ecosystem?

LucaNetz: They just feel like this is their own show, very arrogant, standing tall. Honestly, I can only talk about this issue based on our success. You may agree or disagree, but I believe the community should come first. Take care of your community and the community will reward you. You see, we are still here, still doing our thing. We know that as long as we take care of them, they will also return the favor. I’m not sure what kind of return it will be, maybe now I already know some, but we just try our best to take care of them and make them successful. And some people just think too highly of themselves, thinking ‘This is my business, I call the shots’.

Host: But if we step back and look at the cryptocurrency industry from an external perspective, where do they go wrong?

LucaNetz: I think they actually have PTSD (post-traumatic stress disorder) because every bull run and popularity cycle of cryptocurrencies just revolves around price increases. But the problem is that retail investors are always the last to take over. So in each cycle of popularity, let’s say a million new users come in, maybe only 50,000 people will make money, see the opportunity and stay, while the other 95% will feel the pain of cryptocurrency until they forget about it and until the trauma dissipates. But the reality is that 95% of people, both from a general public and retail perspective, will end up being burned by cryptocurrency. So herein lies the problem. You know what I mean, right? They feel that cryptocurrencies are not real enough, or that they are too illusory.

So, much of Pudgy’s work is about how to connect with consumers and retailers, without making price the core. They may come across PENGU or Pudgy’s NFTs occasionally, but we hope to establish a first impression by introducing them to actual products, such as toys they hold when sleeping, accessories on their backpacks, or social media posts from their loved ones, because these things are interesting, exciting, or make them happy. We hope these become their first point of contact. Then, as time goes by, if they are willing to join and believe in Pudgy Penguin’s vision and movement, they can do other things, but the first thing to do is to align.

The Entrepreneurial History of Pudgy Crossing Hell

Host: You mentioned that you have a team of 60 people. For entrepreneurs like me who want to enter this industry, can you share how you made this project successful? What was your first step? What happened after you acquired this project?

LucaNetz: After buying Pudgy Penguins, we went through a very difficult first 12 months. Initially, we couldn’t rely on royalties to make money. I knew we had to quickly establish a sustainable business model, but I didn’t expect to go bankrupt so quickly. In the first month of buying the project, royalty income was $500,000, but in the second month it was only $20,000. I thought this was insane! It wasn’t because the market volume had dropped much, maybe it had dropped 20% or 30% of the trading volume, but the royalty income went to zero directly, and we suffered like this. You can’t imagine how difficult that time was. We had several people, who should still be here now, were part of our early team, but in the end they betrayed us and really stabbed us in the back.

Host: What do you do when someone betrays you like this?

LucaNetz: Ah, I really cried. It was terrible back then, that kind of betrayal was the most painful. I had to face some big holders talking behind my back, calling me stupid. We had a few guys like that in the early days, leaking the NDA contracts they signed, spreading FUD. Don’t you understand? I was working desperately to make this thing work, we had no money at all, the whole team only got $1000 salary per month. Jennifer, our CLO, who is clearly a lawyer from Stanford, could have made $40,000 a month, but she chose to stay, trusting our vision, trusting that we can do it, trusting that we will always find a way to get through the difficult times.

Then I have to participate in a conference call and discuss fundraising with 300 venture capitalists, and the answer I got was ‘no.’ I find it very strange. I have clearly built a billion-dollar company before. How can you say no? You invest in projects that I don’t understand. I feel insulted.

Moderator: What do you think is the reason for this? Why aren’t they optimistic about you? Is it because they think it’s a “children’s industry”? They don’t understand?

LucaNetz: I think they didn’t see the big picture, they focused too much on the details and thought it was just an e-commerce or consumer goods company. They didn’t realize that we are a real team, we are a team with dreams, and I am also a dreamy founder. Most of the venture capital is not doing well. I can tell you from an investor’s perspective: when you invest, you are not looking at the project itself, but at the team. Investment is about investing in people, and the core importance of the team is more critical than creativity and products. All the investments I have made well are because the team is very strong. The projects I invest in can succeed because the team is excellent, that’s it, that’s the only place worth betting on.

So we were really, really hard at the time. At the end of the day, there was only about $200,000 left, and the VCs said “no.” At the same time, I’ve seen them write huge checks to other companies, like Moonbirds, which was able to get funding for $50 million at the beginning. Do you know how I felt? I was like, “You’re crazy, aren’t you?” I’m so mad that I don’t trust us. That’s when I decided, put the names of these people on my list, and I wanted to let them know that they were missing an opportunity. I have a list and I know where they put their money and it’s so hard because I was going to give him 50 but he wouldn’t even give an offer for a Mia.

Host: I always hear people say, ‘I wish we had a Luca on our team.’ Right? I’ve said that I wish I could be like Luca in certain companies, especially in the children’s IP field, which is difficult.

LucaNetz: Even so, there are many problems. That’s not the hardest part, the hardest part is looking at these other NFT projects, some of which were once two Ethereum, and then someone got to 20, 50, 100. When I show them, they will say, ‘No, it’s okay, it’s done well, it’s quite cute.’ That’s the hardest part, even people’s attitudes.

That was really the hardest part, because I was on the Spaces tour and worked harder than anyone else. You couldn’t have worked harder than we did, every effort, every meeting, every flight, every meeting, they put me in the back row of every meeting, and they put me in the last row until three to six months ago. That’s the hard part, and now I’m not going to accept anything less than that.

That’s really the hardest part, it’s not just the investors, it’s almost everyone who is downplaying it, except for the community, really thanking them. Really, I have a lot of respect for them. There’s a guy who stepped up, and we’ve got Spencer here.

Spencer’s NFT fund is probably the best performing in history, right? His biggest investment was Pudgy Penguins. I like this a lot because do you know how many big NFT funds there are? They’re all buying art stuff, and they’re not pushing the industry at all. Right? Now, if Pudgy can do what we want to do in the next few weeks, we’re bringing back the NFT marketplace, not the artists.

I respect this, I like it, I’m not belittling it. But the question is, brother, how can you spend 10 million dollars to buy that, but don’t even own a penguin?

I’m telling you this to inspire those who will eventually replace me. I’m standing at the top now, and I’m going to keep going. I will hold this position firmly for a long time, but I want you to know, do you know? The person who takes over my position will send you into oblivion, just like we did back then. You must dig deep into your heart, stay strong, and not let these things affect you. Because, my friend, I really broke down in a few days, and it was really difficult.

I’m telling you this story and background on this podcast to inspire you and encourage you. I know what you see now is interesting and exciting, but let me tell you, every entrepreneur goes through bad things in their company and business, and not just once. So as a source of motivation for all entrepreneurs and builders, I hope you can all get through it, my brothers. This is not a victory to show off, we still have a lot to prove. So, I’m not saying I’m the ‘GOAT’ (Greatest of All Time), you know? But at least we’re somewhere.

Why PENGU will fill the last gap in the Solana ecosystem?

Host: There is a lot of content in this industry. We have mentioned NFT, now it’s games, and then tokens. So can we talk about games? Let’s talk about tokens. How does it relate to all of these? Give us some key information, straight to the point. It’s not a meme coin, nor is it just a cryptocurrency, just say it.

LucaNetz: I want everyone to define what they think it is, is it a community coin? Cultural coin? Meme coin? Or a consumer brand token? It is all of these things, to me, it is the face of cryptocurrency, and I believe it is the most beautiful story in the crypto industry in the past four or five years. It is a ‘dark horse’ story. I think if it succeeds, it will change the entire industry for the better.

I think it is difficult to refute this point, of course, I am biased. So everyone can evaluate it themselves. But you can’t say that Pudgy’s success is not a great victory, not a huge force driving the entire industry forward. For me, Pudgy’s success is a huge force driving this field forward. I think this is easy to understand, many people may think it is a meme coin bonus version, right?

From a technical and structural perspective, it’s very much like a meme coin. 4 billion views on Giffy, all content is memetic. So you know, it’s very substitutable and memetic. I think from this perspective, many people will agree with this narrative. And you know, the prophecy and legend of Penku Man already existed before me.

From this perspective, I think many people would agree that it’s a meme coin. But you know, I want to put that blue penguin on Walmart and Target, put it in the first place on the App Store, put it in the hands of millions of people, and spread it on social media. I also want to bring it to the big screen, and someday I will do all of this.

So, meme coins usually don’t have much action, right? But I firmly believe that this will be the first case of meme coin evolution. I think if there is a team like ours behind Doge, the value of Doge will multiply because Doge can be used in many movies and TV shows. You can’t tell me that the popularization of IP won’t create demand, and demand will make things more valuable. It’s a very simple concept, and it’s true for anything with a fixed supply.

This is actually a supply and demand model. So are you telling me that millions of fans and hundreds of millions of views per day do not affect or support this ecosystem and theory? I think this view is fundamentally untenable.

Host: So, what can the PENGU token do?

LucaNetz: I can’t say specifics, anything that matters to you is what matters to you. Buying things, doing anything you think can be done. Everything is. You know, it’s all based on your understanding. We are a smart team, right? But in the end, it still depends on everyone’s participation.

But don’t expect it to be any greater than your local Doge or Pepe. It’s just the same vessel, any other ideas are unexpected surprises and joys.

Host: Why choose Solana instead of Abstract or other chains?

LucaNetz: Because the original plan was to do it on Abstract, but it wasn’t ready yet. Crypto is really timing, right? There was a point in time when I knew intuitively that it was time to do it. You can’t rush into something so important just to pursue a point in time that has nothing to do with it, can you?

It will only make the community larger, create more hype and momentum, and make things more grounded, so many people building on Abstract are actually mainly interested in two things: they believe Abstract can bring the distribution capability of Web2, and they also believe that Pudgy is the best community to get in touch with cryptocurrencies. The first reason still holds, and the second reason now becomes more meaningful, because I will soon have tens of thousands of holders, soon there will be tens of thousands of people, and maybe soon there will be millions of holders. Now the ‘Penguin Legion’ is no longer 10,000 people, but 500,000 people, and may even reach 1 million people. It will go multi-chain, it will be a multi-chain project, right?

I believe in the future of multi-chain, and I think Solana is where we want to go the most. I think what we can bring to Solana is very important to the ecosystem. I think we can do something from a unified perspective and bring everything together. You know, Solana has its PvP, and we are on top of its L1, but from our perspective, Pudgy is not the face of Ethereum, it is the face of cryptocurrency, right? For us, I believe in Solana’s ecosystem, I believe in its community, and I trust its culture.

If we don’t show up in Solana in this field, I think it would be a huge mistake for us to help open up this new field and lead the way. It would be a great loss for us, our ecosystem, and even Solana, and I think it suits us.

I believe what we are bringing is the beginning of a cultural phenomenon, in my opinion. I think this is the last piece missing from Solana. You put a cultural phenomenon on top of Solana, like what Bored Apes and Punks did, I think it will make the whole ecosystem better. Based on my interactions with the Solana community, I wanted to do something for them, and this was a great opportunity for me. Of course, it will eventually be an SPL token. Ultimately, you know it will be a Solana-based token standard, and that token is the SPL token.

Host: SPL token, explain to the audience what it is.

LucaNetz: SPL is one of the native token standards of Solana, and there are different types of token standards on Solana, with SPL being the most common. So it’s not really that complicated, everyone can take a look.

Host: When will this token be launched?

LucaNetz: Very fast, extremely fast. We don’t plan to wait until the end of the year, nor do we plan to go live immediately. So, according to the plan, it may already be live when this release is published.