From Punks, Apes to Penguins: How Profile Picture NFTs Have Become a New Cultural Paradigm

Author: Benjamin Hor

Compiled by: Hu Tao

Recently, avatar-based NFT projects represented by CryptoPunks have been particularly popular, with average transaction prices reaching hundreds of thousands of dollars.

Coingecko analyst Benjamin Hor wrote an article analyzing typical projects in this recent craze, such as CryptoPunks, Bored Ape Yacht Club, and Pudgy Penguins, as well as the reasons behind them, and explored why they have become a new cultural paradigm.

People have been comparing the past few weeks to the DeFi summer of 2020. Besides that, NFTs are the new hot topic. We have seen explosive growth in many projects within the NFT space. Initially, Axie Infinity led the Play-to-Earn revolution. This was followed by a series of NFT art (sometimes affectionately/maliciously referred to as JPEGs) that reflected the iconic avatar-based style of CryptoPunks.

You might be wondering: what is happening here? Are people really spending thousands of dollars on profile pictures (PFPs)? Well, if you are talking about CryptoPunks (Punks), that is not quite accurate. People are spending millions of dollars.

Source: Larva Lab

The top two auctions took place in March 2021, with each selling for as much as $7.6 million, but last month, many other punks were also purchased for millions of dollars—this does not even include the punk that was publicly auctioned for $11.8 million in June 2021. So the question becomes, why are people putting life-changing amounts of money into JPEGs?

Answering this question is not easy, as it involves many different areas. We can try to clarify some of the things at play, but pretending we have all the answers is at best a delusion. Instead, we will attempt to share our observations, whether as observers or active participants.

We will first document the journeys of three projects: CryptoPunks, Bored Ape Yacht Club, and Pudgy Penguins. Then we will discuss the cultural impact these projects have had in the crypto space. Finally, we will explore why they took off and what they mean for this new digital age.

1. CryptoPunks

Punks have a long and glorious history. In 2017, co-creators John Watkinson and Matt Hall released 10,000 punks, all of which were programmatically generated and available for free (claimants only had to pay a small minting fee).

Based on curated elements from the creators, features were randomized and aggregated through a generator. Different features sprang up like mushrooms after rain, with some being rarer than others. Some are aliens (only 9 such punks) and apes (only 24 such punks), while most are ordinary humanoids.

Despite being one of the earliest NFT projects on Ethereum (even a few months earlier than CryptoKitties), there was almost no activity. According to Hall, fewer than 30 people claimed punks within the first few days of release. Over time, more and more people began to learn about the project, especially due to an article from Mashable, and eventually all punks were minted.

The community, though small, was passionate. However, punk owners slowly but surely became symbols of identity. Provenance always brings value to any collectibles market, and blockchain technology is no exception. Holding a punk conveys two things: you are either an NFT/Ethereum OG (original gangster) or part of history. Owners recognized the social status it conferred and began changing their profile pictures on social media platforms (like Twitter, Discord, etc.) to punks.

Fast forward a few years, and punks are still flying under the radar. Meanwhile, NFT hype had been building up in 2020. Virtual worlds like Decentraland and The Sandbox (often referred to as Metaverses) increased attention on NFTs. However, the real catalyst came when the Top Shot NFT market launched in October 2020.

Top Shot is a collaborative project between Dapper Labs (the team behind CryptoKitties) and the NBA. The product consists of basketball game highlights packaged as collectible "moments," which saw huge demand. Officially licensed NBA NFTs gained massive recognition and marked the first successful foray of a sports organization into NFTs.

As NFT hype grew, we saw a surge in sales of other art NFTs. Sotheby’s, a top auction house established in 1744, further legitimized this movement by auctioning NFT artworks, including Beeple's historic $69 million auction. While crypto natives had begun accumulating, the real attention turned to punks when celebrities, venture capitalists, and business people joined the hype.

Even one of the most successful crypto venture capital firms, Three Arrows Capital, began acquiring punks in recent weeks, pushing the average sale price to new heights—it is now averaging $180,000.

Source: CryptoSlam

Punks have become symbols of prestige and digital culture, intersecting with the history and art of NFTs. Many projects have tried to mimic their success, but few have succeeded. However, one project stands out. We are, of course, talking about BAYC.

2. Bored Ape Yacht Club (BAYC)

For a long time, avatar projects often relied on the old-school vibe, pixelation, and low resolution of punks. However, BAYC was a refreshing change, as the founders wanted to create something with a larger narrative.

Imagine in 2031, 10,000 extremely wealthy and bored apes—what are they doing? In the lore of BAYC, these apes hang out in a swamp club and "get weird." Each Ape's features/design are heavily inspired by the 80s and 90s, drawing from punk rock and hip-hop genres.

Being an Ape holder also grants membership privileges, such as access to a graffiti board and exclusive commercial rights to their NFTs.

Despite an initial minting price of 0.08 ETH, the average sale price has since skyrocketed—currently averaging around $50,000.

Source: CryptoSlam

So why did BAYC succeed? Beyond the novelty of internet club perks, it is noteworthy that a strong community formed from the outset. According to Ape OG Joshua Ong:

"I was there from day one. There was a magic in the community; everyone was just connecting with each other." He said, "As Apes, we started changing our profile pictures. We began following each other on social media, like 'Ape follow Ape.'"

Most of the initial buyers were also Top Shot collectors who had already formed their own groups before BAYC—this led to quick friendships. Most importantly, there were passionate members within the community. One member launched a publication called "the Bored Ape Gazette," while another named their Ape "Jenkins the Valet," complete with a backstory. There were even baseball merchandise and crowdfunding for ape-themed novels.

Since its launch in April 2021, the project has achieved many milestones, including airdropping dog-based NFTs to all Apes and donating over $850,000 to orangutan charities.

With an interactive community, good chemistry, and openness, a strong culture has organically developed. The overall vibe attracted many others wanting to be part of the brand, the Apes family. As the community grew, BAYC eventually came to be seen as the second punk.

3. Pudgy Penguins

We have already seen the impact of a strong NFT community from the start. But what happens when there isn't one? Enter Pudgy Penguins.

Pudgy Penguins launched less than a month ago, in July 2021. There are 8,888 penguins up for grabs, each with a minting price of 0.03 ETH. Like most NFTs, each penguin has different features/rarity, such as skin, clothing, and hairstyles. There was essentially no roadmap, presumably only attracting buyers who liked this art style.

Source: Nansen

All penguins were completely minted within the first 20 minutes, indicating broader interest. The average sale price stagnated in the following two weeks, even dropping to the mint price of 0.03 ETH. However, in the third week, both volume and average sale price surged rapidly.

The average daily sale price reached a historic high of 3.8 ETH, while weekly trading volume surpassed existing entities like Punks and BAYC at its peak. The frenzy around Pudgy Penguins even made it to The New York Times and Billboard. However, since then, interest seems to have slowed.

So what happened? Why did Pudgy Penguins take off despite the lack of a "social foundation"?

Despite public accusations that the project might be manipulated, including claims that CoinGecko and The New York Times were bribed to promote them (author's note - CoinGecko was not sponsored), we believe there are other factors at play.

According to CL from eGirl Capital: "Memes are hard to define; they are like… very memorable units, often associated with humor or other information, imitation, social cues, broad influence and liquidity, and may be considered a cultural element transmitted non-genetically, a global language connecting generations."

When a community gathers through memes, you provide global appeal. Many people want to be part of the "meme movement" because it offers a medium of relevance through humor. We have seen this elsewhere with meme coins and stocks.

The GameStop/AMC saga showcased the power of a virtual community driven by a single "meme" purpose. Despite lacking business fundamentals, the stock prices of both companies were driven up by a group of anonymous individuals on Reddit who wanted to punish the hedge funds heavily shorting both companies. The power of memes even required regular market reports from business news sites and detailed retail strategy breakdowns of options trading from Barclays.

Pudgy Penguins seems to follow a similar trajectory. While it is impossible to definitively prove or disprove the existence of a conspiracy group, we can look at specific data metrics to help substantiate its organic growth rationale.

Source: Nansen

Based on the distribution of holders (as of August 18, 2021), we can see that the threshold of unique wallet addresses is close to 50%—indicating that the accumulation by whales is limited and driven by actual demand.

Source: Nansen

Additionally, let’s consider the number of diamond hands (the total number of NFTs held by addresses that have not sold any NFTs from that collection). As of August 18, 2021, the market seems to have stabilized, as 470 penguins belong to holders who have not sold any penguins at all. With the average sale price down over 60% from its peak, this indicates fewer traders and more holders.

Despite all this data, some may wonder, will Pudgy Penguins survive? Unlike Punks and BAYC, the Penguins team has not yet established their global chain. The project has only been around for less than a month, so it is too early to draw conclusions. The strength of the community is crucial, as is whether the founders can execute their planned roadmap well. Regardless, if we learned anything in 2021, it is to never underestimate the power of memes.

4. Further Thoughts

When observing the development of these projects, certain things come to mind.

We explored some social dynamics in previous articles, discovering that humans have an innate desire to collect things. However, what we grasped was entirely based on taste. In some cases, just look at the traditional collectibles market to see how big this industry is.

More importantly, collections have clearly evolved from the tangible to the intangible. Everest Ventures Group (EVG) first highlighted this through gamers and virtual avatar clothing.

According to EVG, the longer time spent in a game, the more emotional attachment there is—this applies to all aspects of gaming, especially community. Many players increasingly rely on their virtual property and respective communities. Some even prefer their virtual communities over reality, making appearance and good community perception in games crucial.

In the past month, this has been further validated in the metaverse. In June 2021, Decentraland allowed users to customize and sell their virtual clothing (wearables) for avatars to wear in the game. Reuters interviewed a kimono designer, Hiroto Kai, who sold kimonos for about $140 each and ultimately earned $15,000-20,000 in just three weeks. According to Kai:

"This is a new way to express oneself; it is a walking art, and that’s the charm of it… When you have a piece of clothing, you can wear it to parties, you can dance in it, you can show it off—it’s a symbol of identity."

In short, people are willing to spend $140 on "fake" clothing that costs as much or even more than real clothes. Not only that, people are willing to pay for a variety of things, including memes like Overly Attached GF, Doge, and overpriced Unisocks.

As the NFT world expands, we see the exact same phenomenon occurring. The only difference this time is that it happens on social media platforms. People are not acquiring in-game skins; instead, they are changing their PFPs to signify they have acquired their respective NFTs.

However, the key distinction is that not everyone plays the same game, but almost everyone is on Twitter, Facebook, etc. Therefore, PFPs have the most significant audience in the digital space.

As the reach expands, PFPs become a better tool for promoting one's digital identity. People are spending more and more time online. Digital identity (if not more) is more relevant than our physical identity. For many, a PFP is more important than a Rolex. On the internet, our digital identity is showcased to the world 24/7. In contrast, in the physical world, our diamond-studded watches can only be seen by a small portion of society at any given time.

Building a PFP after your NFT means you have decided to see yourself as a member of an exclusive NFT tribe, similar to how some identify themselves based on their religious or political beliefs.

Exclusivity and like-mindedness come along with it. Social signals manifest in forms recognized by the community, and community members will begin to engage with you and promote their support (e.g., following on Twitter). Members even start role-playing or changing their way of speaking. For example, Penguins use #HUDL instead of #HODL.

5. The Bigger Picture

Beyond collectible features (such as scarcity and aesthetics), it is clear that NFT projects heavily rely on social foundations. However, the composition of social fundamentals may vary from person to person, and we believe there are primarily three types: capitalism, community, and culture.

The capitalist aspect is the most obvious. Many in the space buy NFTs hoping for a quick rise. Just look at Nansen's profit leaderboard, and you will see the profits of NFT whales.

Source: Nansen

It is no surprise that almost any type of collectible (like the sneaker market) has speculative value. However, a more interesting observation is the communication and cultural aspects.

Punks reaffirmed the value of provenance— as the project matured and its influence expanded, its perceived value and price soared. This led to a unique community—the crème de la crème and NFT elite. Those buying punks are paying for this community. In other words, exclusivity brings desirability.

BAYC has long been regarded as a community initially priced by Punks. However, over time, the project has thrived due to strong interactive social features (like the graffiti board), a passionate/tight-knit community, and other novel features (like merchandise sales rights).

Penguins challenged our preconceived notions about the conditions needed to form a community. The project had no roadmap or plan at all, but was based on the internet's biggest commodity—our attention to memes. Unlike most projects, the community formed after the meme culture was established. However, whether this community will endure remains to be seen.

If we consider the entire sequence of events, we can infer some compelling social insights.

First, there are no boundaries or logic in terms of value. We have seen this in the diamond industry, where natural diamonds are functionally similar to synthetic diamonds but carry an average premium of 30%.

Since the 18th century, the diamond industry has been controlled by De Beers, which controls 80% of the market. By influencing the masses through marketing and advertising, society has now accepted diamonds (ideally natural) as precious gifts for engagement rings. If De Beers can convince the world that diamonds are essential for engagement rings, the same principle seems applicable to NFTs.

People have assigned value to NFTs through shared consensus. For example, NFTs are replacing engagement rings. Moreover, unlike De Beers, both Punks and Apes demonstrate that communities can build a brand, and culture and value will follow. If you have enough Penguins, even memes can generate value.

If we step back to analyze this, we will see community, culture, and even our own symbolization. However, it is hard to say whether this is a good thing.

On one hand, NFTs allow us to break down abstract social structures into dollars and cents—this presents various exciting opportunities for developing decentralized brands and communities.

On the other hand, some may argue that we are approaching a digital dystopia, which could ultimately resemble Bing in "Black Mirror."

Regardless, we at CoinGecko have long believed that almost everything will eventually be tokenized—CryptoKitties are out, and we cannot stop it.

So the next time you ask yourself why people are willing to put millions of dollars into NFTs, remember this: the lines between the virtual world and reality are becoming increasingly blurred, potentially backed by a range of identities, cultures, and communities that provide intangible social value. Su Zhu, co-founder of Three Arrows Capital, brilliantly summarized this paper: