Bellygom and Puuvilla: Entering a New Phase in the NFT Market

Translated by Lyne Choi

Table of Contents

Introduction

1. Lotte and Shinsegae Venture into the NFT Market with their IP

  1-1. Lotte: Introducing Bellygom to Target the MZ Generation

  1-2. Shinsegae: Puuvilla as an NFT Created by a Famous Dutch Illustrator

  1-3. Both Projects Witnessed Phenomenal Popularity Upon Launch

2. Both Companies Face Challenges Due to Market Downturns and Declining Profitability 

  2-1. Challenge 1: Decreased Interest Amid the Market Downturn

  2-2. Challenge 2: Declining Profitability due to Limited Revenue Structure

3. Building a Participatory Ecosystem and Exploring OSMU Strategies for Increased Value

  3-1. Solution: Moving from a Benefit-Focused Ecosystem to a Participatory Ecosystem and Exploring OSMU Strategies Leveraging IP

  3-2. Bellygom: Polygon Migration, Chainlink Partnership, and the Introduction of SOM and Jelly 

  3-3. Puuvilla: Short-term Interest Surges with Introduction of Crystal Ball NFTs, but Further Improvements are Expected 

Closing Thoughts: The Future of the NFT Market in Korea 

 

 

Introduction

In response to the growing trend of mobile home shopping and the evolving shopping behavior of Generation MZ, numerous companies are actively exploring business strategies targeted at this demographic. In pursuit of this objective, prominent Korean enterprises are advocating for the integration of Web3 technology and leveraging NFTs to expand their businesses, enhance their brand image, and implement marketing strategies, particularly tailored to the mobile and Generation MZ audience.

To support this claim, Lotte Home Shopping and Shinsegae Department Store introduced membership-based NFTs featuring their respective brand characters in mid-2022, signaling a departure from traditional operating methods. Additionally, Bellygom has started migrating to the Polygon network and is introducing ecosystem points along with new NFTs. Puuvilla has also announced plans to mint new NFTs in order to expand its ecosystem. Although their recent performances have been lackluster, we believe that both companies have the potential to evolve into competitive global NFT projects. In this article, we will examine the current state of the domestic NFT market and its future prospects.

 

1. Lotte and Shinsegae Venture into the NFT Market with their IP

1-1. Lotte: Introducing Bellygom to Target the MZ Generation

Bellygom was developed in 2018 by Lotte Home Shopping's character business team to appeal to the MZ generation. Lotte Home Shopping implemented a strategy to promote the character independently, separate from the Lotte brand. Instead of directly featuring Bellygom in home shopping programs, Lotte Home Shopping utilized a hidden camera concept through YouTube video content to showcase the character. This strategic approach proved successful, leading to Bellygom's popularity and amassing approximately 600,000 subscribers, solidifying its position as a successful character intellectual property (IP).

In August 2022, Lotte Home Shopping partnered with FSN's subsidiary, Fingerverse, to mint 10,000 membership-based NFTs featuring the beloved Bellygom character. These NFTs grant owners access to a range of exclusive perks at Lotte's hotels, department stores, cinemas, amusement parks, and more, depending on the tier of their NFT.

1-2. Shinsegae: Puuvilla as an NFT Created by a Famous Dutch Illustrator

Puuvilla initially emerged as an independent IP character, separate from the NFT business. In 2017, the Visual Merchandising (VMD) team at Shinsegae Department Store partnered with the renowned Dutch illustrator, Lieke van der Vorst, to develop and launch the industry's first in-house character. This collaboration spanned from the initial planning stages to the character's final creation. Since then, Shinsegae Department Store has effectively employed Puuvilla as a strategic marketing tool by featuring the character in both interior and exterior settings of their department stores, as well as creating Puuvilla merch.

In June 2022, Shinsegae Department Store joined forces with Meta Kongz to mint the pioneering industry's first PFP (Picture For Profile) NFT, introducing a membership-based system featuring Puuvilla. Holders of these NFTs were granted a range of advantages based on their rank, including coffee coupons, meal vouchers, valet parking services, and exclusive access to membership lounges at Shinsegae.

1-3. Both Projects Witnessed Phenomenal Popularity Upon Launch

The Bellygom and Puuvilla characters were introduced as NFTs around the same period in mid-2022. They were released as membership-based NFTs, offering nearly identical benefits, and quickly entered the trading market. Bellygom experienced an impressive trading surge, with its value skyrocketing to around five times its initial minting price (approximately KRW 200,000). It achieved the remarkable feat of ranking no. 1 globally and within the top 20 in terms of trading volume on the Klaytn network. Similarly, Puuvilla's NFT achieved remarkable success, with trading prices exceeding 300 times its original minting price (approximately KRW 100,000). Puuvilla instantly sold out all 10,000 NFTs within a mere second of minting, closely followed by the rapid sell-out of Bellygom NFTs.

The market's tremendous interest has significantly impacted revenue growth. In the case of Bellygom, the pop-up store and Belly Store, which retail Bellygom character merch, have sold over 150,000 items and generated more than KRW 2B since March 2022. Bellygom NFTs are believed to have contributed to the sales of the merch by providing an additional promotional channel. Following the launch of the Puuvilla NFTs, Shinsegae Department Store observed a 12.2% YoY increase in online sales during 2Q 2022. The successful minting of Puuvilla NFTs is thought to have played a significant role in this impressive performance.

 

2. Both Companies Face Challenges due to Market Downturns and Declining Profitability 

Bellygom and Puuvilla initially experienced significant growth in floor price and trading volume, capturing substantial attention in Korea. This can be attributed to two factors: 1) being issued by prominent Korean companies and 2) offering various benefits for NFT holders. Unfortunately, the macroeconomic environment has deteriorated, and events like the FTX crisis have contributed to a downturn in the crypto market, subsequently impacting the NFT market as well. In this context, Bellygom and Puuvilla NFTs are currently confronted with two significant challenges.

2-1. Challenge 1: Decreased Interest Amid the Market Downturn

With the ongoing downturn in the crypto market, the general interest in NFTs has naturally declined. The narrative surrounding membership NFTs has weakened, and Bellygom and Puuvilla have been unable to evade the impact of the market situation. This is evident from the declining trend of Bellygom and Puuvilla search terms on Naver Trends, which have not yet recovered to their previous levels since the minting of the NFTs. In terms of pricing, Bellygom and Puuvilla NFTs once reached considerable heights, trading at 284,000 KLAY (approximately KRW 90M) and 68,000 KLAY (approximately KRW 20M) respectively. However, they are currently trading at relatively lower price levels due to decreased interest.

2-2. Challenge 2: Declining Profitability Due to Limited Revenue Structure

Currently, most NFT projects heavily rely on fees generated from secondary trading as their primary source of revenue. In the initial stages of NFT minting, the fees from secondary trading tend to be higher, allowing for smoother project operation. However, as trading volumes gradually decrease, so do the fees, often leading to long-term profitability deterioration. Presently, NFT exchanges are engaged in a competitive struggle, resulting in relatively low earnings, with royalties from representative NFT exchanges like OpenSea and Blur averaging around 0.5%.

For instance, since its minting in June of last year, Puuvilla generated 822,530 KLAY (approximately KRW 2.6B at the time) through secondary trading fees until February 2023. However, during the same period from August to February, the project incurred an average monthly fixed cost of about KRW 70M, totaling KRW 4.9B. Recognizing the challenges posed by the current revenue structure, Shinsegae determined that sustaining the project was difficult and consequently decided to reduce the benefits. This reduction in benefits has increased the selling pressure on NFTs, creating a detrimental cycle. It is anticipated that Bellygom NFT, which was minted around the same time and relies solely on secondary trading fees as its revenue source, may be facing a similar situation.

 

3. Building a Participatory Ecosystem and Exploring OSMU Strategies for Increased Value

3-1. Solution: Moving from a Benefit-Focused Ecosystem to a Participatory Ecosystem and Exploring OSMU Strategies Leveraging IP

As highlighted earlier, the primary challenges facing the current NFT industry are declining interest and limitations in the revenue structure. To address these issues, we propose two solutions: shifting from a benefit-oriented to a participation-oriented ecosystem and implementing an OSMU (One Source Multi Use) strategy leveraging IPs instead of solely relying on secondary trading fees.

Transitioning to a Participatory Ecosystem
The initial approach taken by Bellygom and Puuvilla NFTs was a benefit-oriented membership structure, which may attract attention in the short term. However, this model can prove costly in the long run and has limitations in building a robust community. Membership NFTs have inherent limitations in terms of maintaining the engagement and interest of holders, often lacking sufficient incentives to actively participate in the ecosystem. To ensure the longevity and vitality of NFT projects, it is crucial to provide opportunities for customers to actively participate in and derive enjoyment from the community, rather than solely relying on benefits.

An example of a successful NFT project is Azuki, which implemented a fan art contest for their NFT holders, encouraging fans to actively contribute and participate. By adopting a two-way structure where NFT holders are central to generating new content, Azuki created an environment that fosters engagement and involvement. This approach not only entices potential NFT buyers to participate in the community but also provides existing holders with a sense of satisfaction and interest through their active involvement in content creation and consumption, surpassing the mere provision of benefits. Azuki has demonstrated that this level of engagement and enjoyment can sustain people's interest over time, leading to the long-term viability of NFTs.

<Azuki Fan Art, Source: @kamogawayuka> 

Enhancing and Scaling IP for Long-Term Sustainability
To ensure the long-term sustainability of IP companies, adopting the OSMU approach is crucial for diversifying revenue streams. The effectiveness of OSMU in securing profitability has been demonstrated by global IP giants such as Disney and Nintendo (as discussed in Xangle Original, "Can Bluechip PFPs Become the Next Walt Disney?"). For instance, Disney has achieved consistent growth over the course of a century by leveraging IPs like Pixar and Marvel to create content spanning games, shows, theme parks, hotels, character merch, and more. In the 4Q 2022 alone, Disney generated approximately $23B in revenue.

Likewise, NFT projects can utilize OSMU strategies to monetize their IPs in various ways, reducing dependence on secondary transaction fees. However, it is crucial to expand and develop the business by accurately identifying the unique characteristics and advantages of each IP beyond merely creating specific products. This entails exploring opportunities to leverage the IP across different mediums, industries, and experiences to unlock its full potential and maximize value.

3-2. Bellygom: Polygon Migration, Chainlink Partnership, and the Introduction of SOM and Jelly 

In the pursuit of a sustainable model, Bellygom Season 2 is taking significant steps to establish its presence beyond the benefits-oriented membership NFTs of Season 1. The migration to Polygon, the partnership with Chainlink, and the introduction of the SOM points system and new NFT Jelly are key elements in this strategic shift. Under the rebranding led by Daehong Communications, an integrated advertising agency affiliated with Lotte Group, Bellygom aims to overcome the limitations of its previous season and gain renewed momentum. With over 40 years of marketing expertise as Lotte Group's hub, Daehong is expected to leverage its know-how to deliver an innovative Web3 experience.

The First Step Towards IP Expansion: Migration from Klaytn to Polygon
Bellygom's decision to migrate to Polygon reflects its ambition to expand the global reach of the Bellygom character IP. While the choice of Klaytn for Season 1 aimed at securing domestic recognition, the move to Polygon in Season 2 signifies a strategic shift toward expanding the limited domestic customer base to a global audience. Polygon has garnered the trust of major global Web2 companies such as Starbucks, Nike, Disney, and Meta, making it the most advanced blockchain platform in terms of Web2 adoption. By joining the Polygon ecosystem, Bellygom is poised to benefit from its robust network and partnerships, providing a favorable platform for the Bellygom IP to gain international recognition beyond Korea.

Moreover, the project is exploring the utilization of the existing Bellygom character in merch development and sales, as well as venturing into new domains. The Polygon ecosystem offers possibilities for integrating the Bellygom IP into Web3 games, as Polygon actively shapes the Web3 gaming market alongside BNB (as highlighted in Xangle's original “State of Polygon Gaming Ecosystem (Feat. Xangle Analytics)"). By leveraging the Bellygom IP across diverse fields beyond gaming, the project aims to diversify its revenue structure and establish a sustainable framework resilient to market conditions. This strategic approach aligns with the OSMU strategy discussed earlier.

Partnership with Chainlink for Enhanced Project Transparency
In a move to ensure project fairness and transparency, Bellygom has forged a partnership with Chainlink. Chainlink stands as the industry standard for decentralized Oracle networks, providing the essential infrastructure for various Web3 services, including DeFi, gaming, and NFTs. Lotte Group, the parent company of Bellygom, has announced its adoption of Chainlink's VRF (Verifiable Randomness Feed) solution for "L.PASS," a randomized box NFT that enables participation in all of its NFT projects. This integration aims to guarantee transparency and randomness. By implementing Chainlink's VRF, Lotte Group aims to distribute L.PASS NFTs fairly and transparently, thereby instilling trust among its customer base.

Bellygom has further revealed that priority for receiving L.PASS NFTs will be given to existing Bellygom NFT holders. This strategy aims to enhance community engagement, sustainability, and activation within the Bellygom ecosystem. Each time Lotte Group releases a new NFT, Bellygom NFT holders will have the opportunity to participate, ensuring ongoing involvement and community growth. Consequently, L.PASS NFTs are poised to play a vital role in establishing the project's long-term sustainability.

*Chainlink VRF: A function that generates random numbers on-chain while providing cryptographic verification.

Introducing SOM and Jelly to Transition to Participatory NFTs
Bellygom is implementing several features to establish a participatory ecosystem, moving away from the previous benefit-centered approach. While the existing benefits associated with Lotte Group companies have been discontinued, two new elements have been introduced: SOM, a point system, and Jelly, a new type of NFT. These additions aim to encourage active community engagement and participation.

SOM represents points awarded based on participation within the Bellygom project's central community platform, Discord. Participants can earn SOM points by engaging in activities such as games, events, and chats. These points can be utilized within the SOM Market, a dedicated marketplace. The introduction of SOM is expected to foster participant involvement by incorporating gamification elements and offering offline experiences, such as the purchase and display of physical goods.

Jelly, on the other hand, is a new ERC-1155-based NFT that is rewarded to users who stake their Bellygom NFTs. The amount of Jelly received varies depending on the grade of the staked NFT. Jelly provides various utilities, including the ability to purchase physical goods, participate in raffles, and gain whitelist access. These incentives are designed to motivate NFT holders to stake their Bellygom NFTs. The introduction of Jelly is expected to alleviate selling pressure on Bellygom NFTs and help maintain their price stability.

3-3. Puuvilla: Short-term Interest Surges with Introduction of Crystal Ball NFTs, but Further Improvements are Expected 

Short-term Interest Surges with the Introduction of Crystal Ball NFTs
In its ongoing efforts to expand its ecosystem, Puuvilla is set to release 2,222 limited-edition Crystal Ball NFTs in June 2023. These Crystal Ball NFTs offer a unique feature that, when combined with existing Puuvilla NFTs, can create a new type of NFT known as the Fashionista Puuvilla NFT. This addition is expected to provide enhanced value compared to Puuvilla NFTs and Friends NFTs (Kettu, Hut, and Poco), as it offers additional benefits for participation in raffles alongside the existing perks of Puuvilla NFTs.

The introduction of Crystal Ball NFTs is expected to generate increased interest in the market in the short term. With a limited supply of 2,222 NFTs and the introduction of new perks, investors will likely be drawn to the project. However, it is important to consider sustainability in the medium to long term beyond the mere issuance of NFTs and the provision of benefits.

Expanding the Ecosystem and Ensuring Sustainability for Bellygom and Puuvilla
To ensure the long-term growth and sustainability of the Puuvilla ecosystem, it is crucial to establish a scalable and sustainable structure. This involves exploring ways to 1) build a participatory ecosystem and 2) expand the IP as mentioned above. While Crystal Ball NFTs may temporarily boost the price of Puuvilla NFTs and contribute to a rebound in trading volume, they alone will not provide meaningful value to the ecosystem in the medium to long term. Therefore, it is necessary to voluntarily engage the community and extend the IP, introducing devices such as Bellygom to encourage community involvement and ensure long-term sustainability.

 

Closing Thoughts: The Future of the NFT Market in Korea 

In the evolving landscape of the domestic NFT market, large companies have viewed NFTs as a marketing tool to enter the Web3 space. However, it is now imperative to recognize NFTs as a solution for global expansion and interoperability, addressing challenges that the existing Web2 framework cannot overcome. By actively leveraging the borderless and interconnected nature of blockchain technology, companies should aim to expand their membership base internationally, connect services between affiliated companies, foster synergy among different offerings, and build a robust ecosystem.

In pursuit of these goals, Bellygom and Puuvilla are implementing various strategies such as migrating to mainnets, forging partnerships, and launching new NFTs. If these initiatives successfully expand their ecosystems, it is anticipated that the existing Web2 market, which has been hesitant about NFT adoption, will undergo a significant transformation.

With the entry of Web2 companies armed with substantial resources, loyal customer bases, and extensive intellectual property and content, the popularization of Web3 is expected to accelerate. As a result, the domestic NFT market will enter a period of substantial growth, driven by successful NFT initiatives led by established conglomerates in Korea.

Therefore, it is crucial to closely monitor the development of the domestic NFT market, particularly the innovative endeavors and outcomes of Lotte's Bellygom and Shinsegae's Puuvilla. These projects are poised to become influential pillars in shaping the future of the domestic NFT market.