"Pudgy Penguins" involved in L2 battle raises questions: The technology acquirer had months of "stagnation" in progress

Author: Weilin, PANews

The well-known NFT project "Pudgy Penguins" has recently been in the spotlight, even appearing in the promotional video for VanEck's ETH ETF. In May, Pudgy Penguins announced a partnership with game studio Mythical Games to develop an immersive mobile game set to launch in 2025; in June, Pudgy Penguins announced the establishment of a parent company named Igloo in collaboration with its NFT licensing platform OverpassIP.

Then, more significant news arrived. On July 23, Pudgy Penguins announced the creation of an Ethereum Layer 2 blockchain called "Abstract." This Layer 2 is consumer-centric and has secured $11 million in funding led by Peter Thiel's Founders Fund. Prior to this, Pudgy Penguins had already acquired the Web3 creator platform Frame, claiming to leverage its technological advantages in blockchain development along with its community and user resources.

Building a Consumer-Centric L2, Possible Airdrop

The new L2 Abstract is a Layer 2 built using Matter Labs' ZK Stack and EigenLayer's data availability layer EigenDA, making the development process for decentralized applications easier, cheaper, and safer. In addition to building this chain, Pudgy Penguins plans to establish a developer incubator aimed at helping applications go from 0 to 1.

This strategic funding round for Abstract was led by Peter Thiel's Founders Fund, with other investors including Fenbushi Capital, 1kx, Everest Ventures Group, and Selini Capital. Pudgy Penguins will use this funding to establish a new company, Cube Labs, to oversee the development of the Abstract chain and provide contributions and support. Michael Lee, former Senior Vice President of Matter Labs, the developer of Ethereum Layer 2 ZKsync, will serve as CEO of Cube Labs.

Abstract is currently operational on the testnet, with the mainnet expected to launch around the end of this year, although the timing for token issuance remains unclear. The Abstract team currently has about 30 members globally, and Cube Labs has an office in Miami.

Pudgy Penguins CEO Luca Netz hopes to "disrupt" with this Layer 2. Luca Netz has big ambitions, stating he aims to bring 100 million users onto the chain. In a recent interview on the YouTube show Milk Road, Luca Netz mentioned that the "consumer crypto revolution" will happen on one chain, which is Abstract. The three pillars for achieving these goals are 'community, culture, and distribution.' Based on current achievements, Pudgy Penguins is well-positioned to succeed. He even emphasized, "Abstract will become the representative term for Layer 2, it will be the largest Layer 2, not just one of the Layer 2s, or one of the thousands of Layer 2s."

Pudgy Penguins' entry into L2 is not surprising, as there are several NFT projects in the market building their own L2s, such as Bored Ape Yacht Club's Apechain and Azuki's AnimeChain.

In fact, from a technical implementation perspective, the difficulty and cost of building Layer 2s have decreased. Lugui Tillier, Chief Business Officer of Web3 infrastructure company Lumx Studios, recently stated that launching and maintaining a Layer 2 is now very quick and relatively inexpensive. Rollup as a Service (RaaS) companies can launch and maintain a rollup in as little as six minutes, with monthly costs under $1,000. However, he also pointed out that the current development of Layer 2s faces many challenges. The first is that market liquidity is fragmented, requiring users to constantly switch wallets and bridge assets. Second, the instability and unpredictability of transaction costs on Layer 2s are detrimental to the development of various applications. Additionally, these new chains may lead to further market fragmentation. Of course, this issue is partially addressed by the same Layer 2s providing CDK, with Polygon, Optimism, and ZkSync building liquidity aggregation layers to make thousands of application chains and industry chains appear as a whole. "Thousands of application chains and industry chains are coming, and they will be crucial for financially sustainable on-chain development."

To better achieve technical development, Pudgy Penguins has recently acquired the on-chain creator economy platform Frame. In December last year, Frame announced on the X platform that it had completed a new round of financing, although the specific amount was not disclosed. Subsequently, in January this year, Frame released an airdrop query link but then fell into months of stagnation. The previous Frame chain had a solution for mandatory royalties and supported native ERC-6551, allowing for the creation of smart contract accounts for each ERC721 type NFT, which had all the functionalities of an Ethereum account, thus enabling the NFTs bound to the account to be composable.

According to the latest official tweet, Frame stated that if users were previous airdrop claimants of Frame, the relevant rewards will be confirmed in Abstract's incentive system.

Controversy in the L2 Battle, CEO Expects NFT Comeback

Pudgy Penguins' current advantage lies in understanding the community and users, and being able to achieve good commercial monetization. For example, Pudgy Penguins' physical plush toys based on NFTs have achieved significant success in offline markets such as Walmart. As of early July, retail sales of these physical toys reached $13 to $14 million, with 1.2 million units sold. This has become one of the foundations for their company's good economic operation.

However, against the backdrop of many NFT projects performing poorly in the market, Pudgy Penguins' L2 plans have sparked community mockery. Goose Wayne (GOFX) @usgoose commented, "But why? Is the promotional material really just 'we fork an L2, hype it up, and then launch tokens through a massive airdrop'? There are already over 50 L2s, why can't Arb/OP/Base solve any of the problems Pudgy Penguins is currently facing?"

However, some users expressed support, such as Steve@SteveKBark, who stated that Luca Netz demonstrated "main character energy," believing that "he sees his team and the Pudgy Penguins community as his competitive advantage, so he doesn't want to transfer that magic to another L2. So he continues to acquire his own company."

In fact, regarding the recent market performance of NFTs, CEO Luca Netz has his own reflections and outlook. "I actually think that if you look at today's NFT space, the execution speed of top projects is unprecedented in NFT history. This mechanism is still effective… The crypto market is a financially driven market, and anything that offers huge returns from a financial perspective will experience ups and downs. Despite the fluctuations, it will not disappear completely. Therefore, I believe NFTs will make a comeback."

He stated that if one understands the advantages of digital collectibles and compares them with physical collectibles, another bullish reason emerges. The current collectibles market is valued at about $450 billion, while the NFT market, i.e., digital collectibles, only accounts for 1% of that. This means that the ratio of physical collectibles to digital collectibles is 99 to 1, while digital collectibles have many advantages over physical collectibles. "Clearly, the current market value ratio of 99 to 1 does not reflect the true advantages of digital collectibles. I believe it should be closer to a 50/50 ratio, indicating that there is still significant growth potential for digital collectibles."

He further pointed out that especially in Asia and China, digital collectibles are currently at their most popular state, and from the perspective of consumer products, this growth potential is very strong. "It is clear that NFTs will continue to exist. The world is moving towards a digital future, and digital ownership is evident to anyone who understands the direction of the internet and our society's development. NFTs are at the core and pillar of this transition. People want to collect, crave valuable items, and pursue status symbols. I believe the worst is over."

Now it seems that although Pudgy Penguins' move to build Layer 2 has received some mockery, the new developments have also brought some stimulation to the NFT and broader market. We will closely monitor how the subsequent trends unfold.