Crypto Quill

The once-celebrated Pudgy Penguins NFT collection has been caught in a spiral of falling prices and forced liquidations, shaking confidence in related financial products like the PENGU ETF.

Prices Sink, Liquidations Surge

Pudgy Penguins, one of the more recognisable names in NFTs, has seen its floor price tumble by 19.6% over the last week, according to data from CoinGecko. That’s not just a dip; it’s a cliff-edge fall.

This sharp decline has triggered widespread forced liquidations on Blur, the dominant NFT lending platform. Over 175 loans backed by Pudgy Penguins are now underwater, being auctioned off to cover debts. That’s a lot of digital penguins heading for the open market at once.

And it doesn’t stop there. Another 50 loans are sitting precariously at 90% loan-to-value. Just a tiny slide in price could push them into liquidation territory too.

Risk of Contagion

The situation is fragile. If buyers don’t step in to snap up these NFTs during liquidation, lenders could be left holding cartoon penguins instead of recovering their capital. That kind of outcome could deepen the distrust in NFT lending as a whole.

Golden Bronny, a well-followed NFT analyst on X (formerly Twitter), pointed out that in past crises some big investors stepped in to scoop up assets and stabilise prices. But whether the same cavalry arrives this time is anyone’s guess.

It’s the kind of moment where confidence—or the lack of it—can create a domino effect across the market.

Blur Market’s Strain on Confidence

Blur has been the marketplace where most of this drama unfolds. As the leading venue for NFT lending and trading, its health directly mirrors the market’s sentiment.

Right now, it looks shaky. Lenders, already jittery, face the possibility of being saddled with illiquid assets. Borrowers, meanwhile, are staring at spiralling debts as the value of their collateral melts away.

One market watcher compared it to a game of musical chairs, except the chairs keep disappearing faster than anyone expected.

ETF Doubts Grow

The turbulence has spilled over to the PENGU ETF, a product tied to Pudgy Penguins. It was meant to offer investors an easier way to gain exposure to the NFT collection, packaged in a more traditional investment wrapper.

But with prices collapsing and liquidations mounting, confidence in the ETF’s stability is faltering. Potential buyers now worry they could be stepping into a product weighed down by uncertainty rather than opportunity.

Some analysts say the ETF could act as a magnifier: amplifying gains when things are good, but worsening losses when markets slide.

Numbers Tell the Story

The financial stress shows clearly in the numbers.

That table sums up a market on edge, where every movement matters.

Market Memory and Investor Behaviour

NFT markets have short memories. Prices can swing dramatically in a matter of days. But collective memory of sharp downturns like this can last much longer.

Investors burnt by forced liquidations often retreat, leaving thinner liquidity and less appetite for risk in the near term. This pattern has played out before with other collections like Bored Ape Yacht Club and Azuki during their downturn phases.

One analyst described it as “a trust deficit” that lingers even after prices stabilise. Once people feel the sting, they don’t rush back in quickly.

What Could Happen Next

Speculation runs wild in times like these. Some see a chance for deep-pocketed collectors to step in, buying NFTs at distressed prices and setting a floor. Others fear a vicious cycle where falling prices trigger more liquidations, which in turn push prices even lower.

The next few days could prove decisive. If the market finds support, Pudgy Penguins might bounce back from this shock. If not, the fallout could spread to Blur, the PENGU ETF, and potentially beyond.

For now, investors are watching closely, nervously, and maybe even a little helplessly. Because sometimes markets don’t follow logic—they follow fear.