Pudgy Penguins CEO Luca Netz: stablecoins will ignite consumer crypto revolution, Walmart deal origin story

this time it's different. Yeah, this time this time is totally different. So I think that I think you're going to see both um you're going to just see shifting demand uh that's there and and uh and a lot more. It's Nvidia is not going to be the only chip supplier of GPUs.

Uh there are some really again great great other providers that are out there. Yeah. Well, thank you so much for stopping by. Enjoyed the conversation. Congrats on the launch and come back on again soon. Yeah. Yeah. Thanks for congratulations. Good luck filtering through all those job applicants. We'll talk to you soon.

See you. Bye. Really quickly, I got some breaking news. The best performing AI agent now comes with a $1 million guarantee.

AI, the number one AI agent for customer service, number one in the world, number one in performance benchmarks, number one in competitive bakeoffs, number one ranking on G2, and you'll start a free trial. You don't want to be baking off with Finn. ai from Intercom. From Intercom. Head over to Finn. ai to get started.

I'll be right back. We'll kick it off. Yeah. We'll bring in Luca from Pudgy Penguins. Um, we're going to talk about what's going on with the market structure bill, what's going on with the Genius Act, what's going on with his business. So, we're very excited to catch up with him. It's his second time on the show.

He came on during crypto day. Fantastic conversation. And now we're excited to have him back on to talk about the state of crypto. How you doing, Luca? Good to see you. I'm doing good. How are you doing? I'm great. What is that behind you? The the Igloo. Is this uh part of the Pudgyp Penguins expanded universe?

Yeah, the holding company that holds Pudgy Penguins, Abstract, and a couple other companies we've yet to announce that we've acquired is called Igloo. So, everything lives within the igloo. That makes sense. There you go. Has there is there a uh is anyone riffing on the meme of like selling ice to an Eskimo yet?

I feel like that's uh you know, I know that you're good at at doing deals with old line retailers, but can you sell ice to an Eskimo? I can I can sell ice to an Eskimo. I can sell fish to a penguin. I can sell land to a mammal. Yeah. What is what what is the latest?

I mean, we caught up on crypto day a couple months ago. What's the latest in your world? How are you feeling? I we've been in this kind of kangaroo market for the highle L1s. Uh prices are up, prices are down.

Everyone's kind of waiting for the next big crypto catalyst, but uh maybe that's the Genius Act, the Market Structure Act. Maybe that's legislation, but what else are you tracking? Stable coins have been really hot with the circle IPO. What's been top of mind for you?

Yeah, our big thing at the Igloo is actually like we feel like we are one of the most well positioned organizations for consumer and culture in crypto. And it was actually a little fascinating cuz I actually felt like I missed a piece in terms of what I felt like was needed for this consumer crypto revolution. Mhm.

And I think it's really prevalent around this genius act, which is I think you're going to see crypto break through mass off the backs of stable coins because if you look at all of the consumer crypto applications and really their barrier and bottleneck, you know, I I I thought it was product builds and I do think that is true to a certain extent, but I think the product builds are a byproduct of the current environment that rewards builders for building in.

And I think that gets completely flipped on its face when average consumers are now transacting in dollars that are on chain.

It opens up a whole new vertical of product builds that I think are more oriented around maybe providing a a service or an experience and not providing a scheme to return your dollars two or threefold as like a financial mechanism for you to kind of speculate on. Yeah.

Uh, and so I think like the Genius Act is quite literally going to kick off the consumer crypto revolution.

And that is really apps that are built around I think the best properties of blockchains which is like on its face I think a lot of people listening specifically around your audience like maybe look at blockchains as like maybe speculative vehicles or like programming languages but I think the best frame to look at it as is like a blockchain is a censorship resistant version of a Stripe or a PayPal that taps into global composability and global liquidity which basically means that like anybody with an internet connection can transact, you know, using these payment rails without some sort of intermediary.

And that at scale, if you actually understand like consumer product builds, you know, every every guy that I know that's building an AI or building consumer product goods at one point has had their account locked up or their funds withheld or are paying a huge premium on these transactions, whether it's 3% in some cases 5 to 8% if it's a higher risk product.

Uh, and I think this, you know, blockchain is very useful when you think about removing that middleman for those applications. I think we've just been pigeonhold as an industry around like these builds that are solely around speculation and making the end user more money, right?

Like I go buy this, I should return a 2x or a 3x or a 5x.

And I think we're slowly transitioning into more traditional builds where it's like, hey, consumer crypto is really around this idea of removing these these layers that I think today make it so hard to build, you know, fun and robust applications that are, you know, segmented either g geo uh from a geography perspective, whether it's certain regions, etc.

Uh and and I think it's kind of transitioning to like more real product builds that I think more serious entrepreneurs are interested in. So the Genius Act, I think, is going to change everything because the the floodgates for stable coins are here.

Uh and I think that was the missing piece to the consumer crypto revolution that I think crypto very much desperately needed. Okay.

I want your reaction to this older analysis by Ben Thompson during the first NFT boom uh where he was talking about the value of NFTTS as a as a as a disintermediated membership uh program essentially.

So basically the the the the link I see to uh stable coins is if you have a community uh and you're a creator, you might not want to have someone have a super fluctuating financial interest in your community.

And so when I think about the folks who are big on Patreon and it's $5 a month or $10 a month, but when I pay $30 a month for the Wall Street Journal, I get access to wsj. com. I can comment there.

There's a bunch of other things that you could imagine, but I can't really go around the internet and carry my Wall Street Journal login to their YouTube account and get custom YouTube videos. Like the videos have to be embedded on the Wall Street Journal website, so it can't really follow me around on the web.

And Ben Thompson was talking to Adam Miseri at Instagram about this idea that Instagram might be open to a bring your own membership type of integration with web 3.

And so I I I think that we were almost there, but there was no one that really broke out into mainstream adoption where both you you got to get YouTube and you got to get Instagram to say yes, we are we are you know integrating this membership card as a native as a primitive on our platform to allow you know creators to create uh you know subscription level content.

Instead we wound up with every social media app has their own subscriptions. So, I can go get YouTube YouTube premium subscribers who subscribe to me, pay me $5. Then on X, I can have subscriptions $5. They subscribe to me there.

Uh, but you got to follow follow me around and you can't just subscribe to me as the creator. That felt like something that Web 3 could do, but we weren't quite there with stable coins. Is that something you think is a reasonable uh dynamic that could play out postgenius act?

Is there still some sort of counterveailing force where the big tech companies might just want not want to give it away because hey, they're earning a cut on those membership revenues directly? How do you see that playing out? They're they're definitely not going to want to give it away, right?

Like those guys are pretty good at capturing and trying to keep revenue. I think like one of the big, you know, bull cases around web 3 is like these universal loginins and identities, right? That like follow you all over the internet. Like that that's going to take a lot of pieces to put together.

But like things like the Genius Act, right, and everyone transacting in stable coins makes that so much more possible and feasible that I don't know of anyone who's really mastering that build just yet. And to the point of NFTs, I think there's two bulk cases for NFTs.

One, which is the one that you referenced, which is access, right? And that is a more mundane, probably less exciting, but probably bigger TAM because you could replace the entire ticketing industry and only fans and Patreon like you'd mentioned and info, right? the guys can go and plug that in.

So I, you know, I I I I think there's that and then there's also the TAM of digital collectibles, which is, you know, physical collectibles today have a total addressable market of about 600 billion. 1% of that 600 billion is digital. Yet digital collectibles have a slew of pros that physical do not, right?

They are they have no friction when buying or selling. They have no insurance issues. They have no storage issues. They have no inauthenticity issues, right? And and so I think there's a there's a gap in value to capture in terms of you know in a $600 billion market.

It's kind of like gold to you know physical gold to digital gold. You know Bitcoin's captured 10% of it. I believe that digital collectibles are you know whether you argue what side of the spectrum they're on they're not 1% they shouldn't have 1% of that market share.

And so I think there's going to be value to capture between that spread.

The other the other the other thing that stands out to me as a as just an observer is that I think when people are frustrated with the NFT market broadly, it's frustration with 90 it's basically saying like yes 99% of attempts to create new IP are going to fall flat because it's really hard to create IP that is actually like it's easy to create IP, it's hard to create valuable IP, right?

And so there was a period in 2021 around Hollywood like 90% of scripts in Hollywood don't go anywhere but 1% it's like they they just hit the chain and they're they're they're you know people assume that there should be some value tied to them and so I think it's just very possible that that NFTts become bigger and bigger and bigger but it's just a handful of really select projects that that you know become these sort of centers for gravity and get developed in all these different ways but you're not going to have a hundred 000 projects that each have movie offshoots, video game offshoots, you know, physical toys attached to them.

And that's exactly the way it happens in the real world where people people in Hollywood, like you said, will spend their entire life trying to develop a cartoon that actually turns into a franchise. And many people will try and fail. Yeah.

And the difference with crypto is like the expectation is immediate value creation. And um I just don't I don't see that happening. Yeah. The the tokens, whether it's fungeible or nonfgeable, there's a superpower behind it. It's a kryptonite and it's a superpower depending on how you harness the power.

But financial alignments can be your greatest weapon or your greatest weakness. Yeah. Right. And how you harness that, right? Like us being able at Pudgy to galvanize this group of 10,000 people to go and hit algorithms.

Our big breakthrough at Pudgy was I told all of them that Walmart had turned us down, that we were going to go live on Amazon and that I needed everybody to buy and if they bought it right all at the same time, we would trigger Amazon algorithms.

We'd be number one across all of these different categories and that they'd give me a lot of leverage to go do a deal with a major retailer. Well, what happened was exactly that. We launched within, you know, 30 minutes of launching on Amazon.

I'm AC I'm number one across basically every consumer product category, every toy category. And then and then Laura Rush, who was the head of merchandising at the time at Walmart, pinged us and said, "Uh, we want to stock you. You got 3 months.

We're going to put you in a pallet in the center of the store in 2,000 locations in quarter 4. " And that was like the big paradigm shift for Pudgy where people were like, "Oh you know, these kids, you know, came out of nowhere and did it. " And and the rest is history.

We've basically, you know, carried that momentum up until where we are today. Uh but that was our big breakthrough and that was because I think of that alignment and that incentive.

Everyone was incentivized to go and create this headline and this moment for Pudgy, at least the core community members who had quote unquote bags or collectibles or tokens within the ecosystem. Um and if you can harness that and if you can respect that, uh it it can be a superpower.

It can be your greatest kryptonite as you've seen a hundred times over and there's, you know, plenty of horror stories which we won't get into. Yeah, bit of a wildcard question, but I don't know if you saw uh OpenAI has a deal with Mattel to make a chat GPT enabled Barbie potentially.

We don't really know the shape of the deal. How many LLMs can fit in a Pudgy Penguin? Yeah. Yeah, that's what we want to know. Uh I mean a lot of LLMs in this I mean you're you're you're in some ways in the toy business and what is the next generation of toys look like? What are you optimistic about? What will change?

Um what technologies do you think will be integrated?

uh what considerations will drive actual success instead of just like yeah we slapped AI on it like we tried that with uh with every toaster having Bluetooth didn't really work out but the Nest thermostat pretty f pretty pretty popular so yeah what how does this play out it's a great question I saw this coming two years ago and I basically jumped for joy when I thought of it and I told the guys because for those who are not familiar the toys that we sell have the QR codes so it's not just like selling toys that are you know IP related we're actually putting NFTs in the hands of regular people because you buy this toy, you scan this QR code, you redeem these NFTs through a gas experience.

So, it's like a whole crypto funnel, which is basically our product, our physical toys. But, I jumped for joy cuz I was like, dude, what if these these characters that you bought and these NFTts that you created then became like your AI homeworker helper, right? And this was an idea I had two two years ago.

And Lorenzo, our president, was like, you know, dude, you know, if there's a 01% chance this homeworker helper tells a kid to kill himself, it's not worth it because we'll get dessheld and it'll create a bunch of chaos. And we weren't, you know, AI guys.

But we actually are doing a toy with Curio who recently raised pretty big over in uh the whole, you know, uh AI crypto or AI, you know, startup Twitter land, X. com land. And and place. Yeah. With that, we're familiar. We're from We've dabbled. Um that's great. Yeah.

How who's the um who's the musician that's involved with that? I don't know. I mean, I Yeah, I'm I'm super bullish on this. Uh you know, I have kids and uh and I mean, I was thinking about this with the Rabbit R1.

Like yes, the safety and security stuff is really really important, but safety interpretability research and the ability to run an extra LLM just filtering is this a harmful uh response from the LLM that seems to be getting better and better and and I'm pretty optimistic about having a a watered down LLM that can't explain everything but is really good at identifying plants and animals.

That's going to be a big product for kids, I think. So, the trick to CPG is all about providing value for the customer. Like Walmart will tell you if you're trying to stock like they're always optimizing for the best deal. And so my mind frame is like how much bang for your buck can you get for this