Source: Cointelegraph Original: "{title}"

In March, when Canary Capital submitted an ETF filing containing Pudgy Penguins NFTs to the U.S. Securities and Exchange Commission (SEC), the crypto community erupted. On social media, cheers for the "first NFT ETF" and "institutional money entering the market" echoed.

However, this was merely an unapproved application, and its actual significance might be closer to a "stress test"—testing regulatory tolerance for NFT assetization and probing the market's residual confidence in institutional narratives.

History always silently marks the price. Three years ago, the 121G fund, also waving the banner of "institutionalization," saw its $40 million in assets evaporate to less than $500,000 within a year. As Pudgy Penguins attempts to turn a new page with an ETF, the forgotten tombstones bear stories that seem all too familiar.

Historical Precedent: The "Atypical Death" of the 121G Fund

In 2022, former Moonbirds COO Ryan Carson launched a fund focused on NFTs called 121G, raising 14,000 Ethereum (ETH) in May of the same year. According to Carson, the fund began investing in NFTs in July, focusing on blue-chip and rare NFTs, as well as promising NFT projects, with a holding period of 3 to 10 years. Like traditional funds, it also charged a 2% management fee and a 20% profit fee.

As an early evangelist of NFTs, Carson's aura attracted a large number of high-net-worth investors. However, the fund's operations were filled with contradictions:

These operations, rather than reflecting institutional professionalism, exposed the fatal shortcoming of crypto KOLs transitioning to fund managers: managing institutional funds with retail investor thinking.

The collapse of 121G was not just a personal mistake but a fundamental conflict between NFT assets and the fund model:

This experiment left behind a set of cold data: a 98.75% net value shrinkage and a maximum single project decline of 100%—they became the first set of "negative benchmarks" for institutional NFT investment.

Pudgy ETF Proposal: A Smarter "Narrative Upgrade"?

The Pudgy Penguins team has clearly studied historical lessons, and their ETF proposal attempts to construct a differentiated narrative:

| Dimension | 121G Fund | Pudgy ETF Proposal | |-----------|-----------|--------------------| | Asset Core | Pure images | PENGU tokens + NFTs + SOL, ETH | | Risk Mitigation Strategy | Claims "top NFT experts select products" | Dilutes NFT risk weight with other tokens | | Regulatory Strategy | Operates in a gray area | Actively applies for SEC review for compliance |

By binding PENGU tokens, ETH, and Solana (SOL) digital assets (as disclosed in the filing), Pudgy attempts to transform NFTs from a "consensus game" into a "multi-asset package" to dilute NFT risk.

However, even so, the Pudgy ETF may face greater risks:

More subtly, the ETF application itself could become a harvesting tool: the team could use the review period to maintain market enthusiasm, creating an exit window for VCs and early investors—this is precisely the script that Bitcoin ETFs have played out multiple times before.

Key Variable: Observational Coordinates for Whether History Will Repeat

Compared to the 121G era, the NFT market has undergone two significant changes:

But these advancements may be offset by another set of data: as of March 26 at 19:40, the total market capitalization of NFTs has fallen from a peak of $431.2 billion in 2022 to about $6.7 billion now, with trading volume significantly shrinking. Are institutions entering to save the market or to collect corpses? The answer remains unclear.

Secondly, for the SEC, there will be "classification anxiety": Do Pudgy NFT holders profit through royalty sharing, constituting an "investment contract" (Howey Test standard)? Did the team use ETF news to inflate NFT prices, creating conditions for insiders to cash out?

These questions have no precedents to follow, and the SEC's hesitation itself will create volatility—Bitcoin ETFs took years from application to approval, with multiple rejections causing price drops.

All of this points to a core contradiction: when an NFT project attempts to "de-NFT," where exactly is its moat?

From 121G to Pudgy ETF, the institutional NFT narrative has evolved from "wild speculation" to "compliance transformation." But this is essentially a continuation of the same proposition: when traditional financial instruments attempt to "incorporate" crypto-native assets, the conflict between the former's risk control framework and the latter's volatility characteristics has never disappeared.

This ETF application acts like a prism: crypto practitioners see the "dawn of mainstreaming," traditional institutions see "new speculative targets," regulators see "unclassified risks," while history silently flips through a ledger filled with bubbles and collapses. Perhaps the only certainty is that—until NFTs find a sustainable anchor for generating external value, all financialization experiments will be an adventure in seeking answers from the void.

Related: DappRadar: Non-fungible tokens (NFTs) have just experienced their worst year since 2020.

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