A Pudgy Revolt
How DAOs give communities the ability to organize quickly.
If you haven’t been following the Pudgy Penguins happenings over the last few days, it’s both hilarious and very interesting. The drama these adorable penguins have created is one of the most entertaining sagas I’ve seen in crypto.
I’m a new penguin owner, having bought on the recent dip in late December, and it’s been fascinating to watch from the inside. But I think it showcases a fundamentally interesting feature of “Web 3” or whatever you want to call all of this.
Some quick context:
This tweet from Jebus captures the high level.
The Pudgy Penguins team had airdropped eggs to everyone months ago, and for some inexplicable reason when they hatched them, they had fishing rods inside…
Penguins don’t need fishing rods to fish, they’re fucking penguins.
Long story short, some penguin holders feel disaffected with Pudgy leadership, while some remain loyal. A few of the higher-profile holders have decided that it’s time for a change and have opted to create an escape valve.
At issue right now is that the current Penguin leadership controls the ongoing royalty fees on sales of the original project, listed on Opensea. This ends up being 10s of millions of dollars if you run out the current pace annually.
There are rumors of buyouts and all kinds of leadership changes, but the interesting piece of all this is the creation of “Wrapped Penguins” and the Pengu DAO.
Click the tweet to view the full thread.
What this means (and I’ve wrapped my penguin so I can confirm it works) is that if the holder chooses, they can place their penguin token in a new smart contract, and the leaders of the Wrapped effort have listed a new “Wrapped Penguins” project on Opensea. This new listing, which only recognizes the penguins who opt-in by wrapping, accrues the royalty fees on anyone trading these Wrapped Penguins to the DAO wallet instead of the original founders. I, as a wrapped penguin holder, can choose to sell my penguin at any time, same as before, just on this new project listing instead.
It’s essentially a community-led takeover. You can even see right now that while only a few hundred penguins have opted into the wrapping process, these wrapped penguins actually trade at a premium compared to their original counterparts as of the publish time of this article.
Link to Original Pudgy Penguins on Opensea
Link to Wrapped Penguins on Opensea
Now for a moderate gas fee (I paid about $80 USD to wrap, but I could have waited for gas to drop more), I’m able to unwrap my penguin and return it to the original project listing anytime I’d like (though this does require me to trust the Metadrop team who is handling this wrapping process and the smart contract).
Most people don’t hold penguins, and most people probably don’t care about the penguins much.
But this to me is the fundamental thesis behind what “Web 3” could mean. Vitalik and Anatoly and all those other geniuses can sort out the specific hardware requirements & validator counts needed to achieve a reasonably decentralized Nakamoto Coefficient. I would never pretend to have a valuable opinion on something like that.
But what these open structures and new organizing principles mean is that regular users can force changes to projects they are passionate about at the community level. Teams have to at least respond to community demand, or else the community can utilize tools like this to fight back.
Maybe the Penguins individually decide not to wrap a majority of their tokens and the DAO fails.
Maybe they do and the DAO ends up being a disaster and they have to unwrap them.
Maybe the DAO votes for competent leadership for the Wrapped Penguins and becomes one of the biggest success stories in crypto.
The point is that this optionality for regular people to participate at this level only exists in crypto. Legacy systems have zero incentive to allow for this unless their hand is forced by a viable alternative.
DeFi Kingdoms was able to launch and find massive success with their growing community partially because they shunned VCs in the early days and instead invested in community-first marketing.
“Web 3” to me doesn’t mean anything if it doesn’t mean this; the value capture will necessarily be distributed to the participants over time because that’s the most effective growth engine. A bet on crypto is ultimately a bet on the value of the wisdom of crowds.