Revolutionary PENGU ETF by Canary Capital Embeds On-Chain NFT Ownership in a Regulated Financial Instrument

In a revolutionary development, Canary Capital launched the PENGU ETF, an exchange-traded fund (ETF) which directly holds both PENGU tokens and Pudgy Penguins NFTs.

Canary Capital has filed for approval to launch the PENGU ETF, a unique exchange-traded fund (ETF) that would directly hold both PENGU tokens and Pudgy Penguins NFTs.

As reported by Bloomberg, this distinguishes it from most NFT-linked ETFs which provide exposure through NFT-related companies or tokens. The PENGU ETF is going for the bull’s-eye by embedding real, on-chain NFT ownership in a regulated financial instrument.

The ETF, still pending approval from the U.S. Securities and Exchange Commission (SEC), would invest 80-95% of its assets in PENGU tokens—the native cryptocurrency of the Pudgy Penguins ecosystem—and 5-15% in Pudgy Penguins NFTs, according to the filing.

For liquidity purposes, the fund would also hold small portions of Ethereum (ETH) and Solana (SOL) for transactional needs. This unique structure makes the PENGU ETF the first fund to directly include NFTs.

The SEC has already approved Bitcoin ETFs, but those funds typically invest in Bitcoin futures contracts rather than directly holding the cryptocurrency.

Canary Capital, a digital asset investment company focused on Web3 financial products, is aiming to bridge the gap between NFTs and traditional finance (TradFi).

The application for the ETF also mentions that the NFT holdings would be stored in a cold storage wallet and overseen by regulated custodians such as Coinbase Custody or Anchorage Digital. This integration of traditional financial regulations with the rapidly evolving world of NFTs is a key aspect of the PENGU ETF.

Despite the promise, the announcement of the PENGU ETF has also sparked skepticism. Some critics question whether there would be enough interest from retail investors in an ETF focused on a single NFT project, especially considering the attention given to metaverse-linked ETFs earlier in the year.

Moreover, the valuation method for the NFTs is subject to debate, as they do not have the same liquidity and standardized pricing systems as stocks or Bitcoin.

However, proponents of the ETF highlight that it would legitimize NFT investments for both institutional and individual investors. By streamlining the process of owning NFTs—eliminating the need for wallets, gas costs, and marketplace transactions—the PENGU ETF could foster broader adoption of NFTs among the general investing public.

The approval of the ETF by the SEC would also be a landmark decision, as the SEC has never yet endorsed an NFT-based ETF. The SEC will be keeping a close eye on how the ETF values its NFT holdings—whether through floor prices, historical trades, or custom valuation models.

Finally, ensuring fair liquidity to investors will be crucial, especially since NFTs are not as easily exchangeable as stocks or crypto tokens. This aspect of the ETF's structure will be a key factor in the SEC's evaluation.

As the dust settles on the news of the pending application for the groundbreaking PENGU ETF, it’s important to differentiate it from conventional art funds.

While institutions like Union Bank of Switzerland (UBS) have art funds that invest in valuable artworks by renowned artists like Picasso or Banksy, these funds typically have very low liquidity.

This means that if an investor wishes to sell their shares in the UBS art fund, it could take several months, or even years, for the fund to sell the underlying asset—a Picasso painting, for instance—and return the proceeds to the investor.

In contrast, the PENGU ETF, if approved by the SEC, would be based on real-time market prices and floor tracking, and investors would be able to buy and sell shares of the ETF on an open exchange, just like any other ETF, rendering it highly liquid.