Bankless Token Ratings | December 2022

Dear Bankless Nation,

We publish our token ratings on the first Friday of the month. Today’s that day.

Bankless Token Ratings are an ~ENTERTAINMENT ONLY~ analysis on whether someone should buy, hold, or sell certain tokens based on our valuation models.

This month we’re covering:

• 🆕 BNB, APT,  AXS
• 🔄 ENS, SNX, PERP

The first token is open for everyone, the rest are exclusive for ✨Bankless Premium subscribers✨.

- Bankless Team

This report initiates analyst coverage on three tokens: BNB, APT, and AXS.

It also updates coverage on ENS, SNX, and PERP.

Below, we’ll discuss the rationale behind each rating by delving into the driving catalysts, as well as its potential impact on the token’s price.

We are also providing a comprehensive overview of many of the tokens we cover via the Bankless Token Bible!

📓 Token Bible access at the bottom of this report. Bankless Premium only!

Intended to complement our ratings and valuation models, the Token Bible is a one-stop-shop where investors can get all the relevant information they need about each token covered, whether it be fundamentals, financials, tokenomics, and more.

Rating Scale and Fair Value Estimates:

Before we dive into the coverage and ratings, let’s take a moment to explain our rating scale and fair value estimates.

The ratings reflect how we expect each token will perform over a six-month time horizon relative to the performance of the overall crypto-market based on market capitalization. It is not indicative of our opinion on the long-run potential of each token.

The rating scale is as follows:

• ✅ Overweight: We expect this token to outperform the broader market over the next six months.
• ➖ Neutral: We expect this token to perform in-line with the market over the next six months.
• ❌ Underweight: We expect this token to underperform the market over the next six months.

To help inform our ratings, we also provide valuation estimates for any of the applicable tokens using a discounted cash flow (DCF) model.

These models aim to value each protocol's core business offerings based on the revenues it generates and its future growth prospects, which are influenced by the catalysts discussed in this report. It is not applicable to all protocols covered in the report as not all of them are generating revenue.

While these models are certainly not the only factor that goes into determining a token’s rating, especially given the short-time horizon on which they are made, we view these fair value estimates as the price ceiling under which we would consider the token to be undervalued and if above, overvalued.

Now that’s out of the way, let’s dive into the report.

✅ Overweight

These are tokens that we believe will outperform the broader market over the next six-months.

Binance Smart Chain (BNB)

• Type: Coverage Initiation
• Sector: L1
• Current FDV: $54.8B

We are initiating coverage of BNB with a rating of overweight.

Catalyst Overview:

BNB is being assigned this rating due to strong network fundamentals as well as due to the collapse of FTX.

The fundamentals of Binance Smart Chain have remained strong throughout the bear market, with the blockchain growing its share of DeFi TVL from 7.5% to 12.5% over the past year. In addition, BSC has generated the second most fees of any network during this time at $528.8M. Furthermore, the network has also managed to grow its user base in recent months, with the monthly average of daily active users (DAUs) up 46.4% since August 2022 from 764K to 1.1M. This is the highest total of any L1 or L2 network.

Potential Price Impact:

BNB’s strong fundamentals and sticky user base should help contribute to outperformance of the token, as the network burns a portion of its total transaction fees (which are paid in BNB). In addition, BNB should likely benefit from FTX’s implosion, as many investors view the token as a proxy for getting exposure to Binance. With one of its biggest competitors out of the picture, Binance seems likely to grow market share, particularly in perps trading, over the coming months.

Ethereum Name Service (ENS)

• Type: Ratings Change
• Sector: Identity
• Current FDV: $1.4B

We are upgrading ENS from underweight to overweight.

Catalyst Overview:

ENS is being upgraded due to strong fundamentals.

ENS has generated $20.6M in profit (revenues less token emissions) over the past six months from registration and renewal fees. This is the second-largest figure of any dapp tracked by Token Terminal (behind OpenSea), and is more than double that of the most profitable DeFi protocol, Maker DAO which earned $3.1M in profit during this period.

Potential Price Impact:

Although they generated 29.6% of their trailing six-month profit in July during the digit-club mania, the protocol is likely to benefit from the continued growth and integrations of ENS names into different applications, particularly Web3 social platforms. In addition, ENS should benefit from increased emphasis on profitability by investors. Finally, while there is no direct value accrual to the token, ENS should still benefit from a lack of token emissions, as there is no source of structural sell pressure from yield farmers harvesting rewards.

➖ Neutral

These are tokens we believe will perform in-line with the market over the next six-months.

Perpetual Protocol (PERP)

• Type: Ratings Change
• Sector: DeFi - Perps DEX
• Current FDV: $71.9M

We are upgrading PERP from underweight to neutral

Catalyst Overview:

PERP is being upgraded due to the upcoming launch of fee-sharing.

In April 2022, Perpetual Protocol voted to implement the vePERP tokenomics upgrade, where users could lock their PERP to allocate emissions and govern the protocol. The upgrade also included a parameter to distribute protocol revenues in USDC between the DAO and vePERP lockers once the size of the protocol’s insurance fund reached 10% of the 30-day moving average of open interest on the DEX. Given that OI is at roughly $8.9M while the insurance fund sits at more than $1.4M (15.7%), it’s likely the threshold will be met within the next several weeks. The community is currently discussing implementing either a 50:50, 25:75, or 75:25 revenue split between the DAO and vePERP holders.

Potential Price Impact:

The proposal, which seems likely to pass given the incentives for holders to maximize token value, represents a material improvement in the value accrual of PERP as it turns the token into a cash-flow productive asset. However, the token is still likely to face sell-pressure from gauge emissions. In addition, despite a TAM that is likely to grow after the collapse of FTX, Perpetual Protocol will continue to face stiff competition from protocols like dYdX, GMX, Gains Network, and others over the coming months.

—

Synthetix (SNX)

• Type: Ratings Change
• Sector: DeFi - Synthetics
• Current FDV: $526.5M

We are downgrading Synthetix from overweight to neutral.

Catalyst Overview:

Synthetic is being downgraded due to a decline in revenues.

Synthetix revenues have plummeted in recent months. The protocol’s monthly revenue is down 86.5% from $8.9M in June 2022 to $1.2M in November 2022. Synthetix’s relative losses have also ballooned over this time with a profit margin of -578% in November compared to a -178% margins in June. This comes as the result of a decline in trades routed through the protocol, as its share of DEX volume has plummeted from 8.7% to 0.3% over the past six-months.

Potential Price Impact:

The decline in revenues has a direct result on the value of SNX, as it reduces the fees earned by stakers, thereby decreasing the attractiveness of holding the asset. This constrains the protocol's ability to scale, as it is collateralized by SNX, meaning that its TAM is limited to being a fraction of the token’s value. While Synthetix has an emerging ecosystem of dapps built on top of it such as Lyra, Kwenta, Thales, and Polynomial, this as of now has yet to reignite fee-growth.

❌ Underweight

These are tokens we believe will underperform the market over the next six-months.

Aptos (APT)

• Type: Coverage Initiation
• Sector: L1
• Current FDV: $4.7B

We are initiating coverage of APT with a rating of underweight.

Aptos is being assigned this rating due to the bankruptcy of FTX.

Catalyst Overview:

FTX Ventures, the exchange’s VC arm, was the lead investor of Aptos’s Series A funding round, which saw the Layer-1 raise $150M. FTX filed for Chapter 11 bankruptcy on November 11. Aptos, which currently trades at an FDV of $4.7B, has seen minimal traction since its October 18 mainnet launch, with just $40.0M in TVL and is seeing minimal blockspace demand as it is processing just 7 transactions per second (TPS).

Potential Price Impact:

FTX’s involvement in Aptos presents a long-term headwind for the network, as the firm will likely sell their APT allocation as soon as it vests. However, it is worth pointing out that this will not begin until October 2023. Regardless, this long-term supply overhang and the close ties to the bankrupt exchange are likely to dampen developer and user interest in the network for the foreseeable future.

—

Axie Infinity (AXS)

• Type: Coverage Initiation
• Sector: GameFi
• Current FDV: $1.8B

We are initiating coverage of AXS with a rating of underweight.

Catalyst Overview:

AXS is being assigned this rating due to upcoming team unlocks and a decline in revenues.

A considerable portion of AXS insider allocations is scheduled to vest between now and April 23, 2023. During this time, more than 8.6M AXS, which accounts for 3.2% of the token’s total supply and is worth ~$59.1M at current prices, is slated to come onto the market through team and advisor unlocks. Axie’s revenue has also fallen dramatically over the past year, with monthly revenue down 99.6% from $75.7M in December 2021 to $271K in November 22.

Potential Price Impact:

These unlocks represent a material source of sell-pressure for AXS, as, especially in a bear market, there is a high-risk of insiders selling their tokens. Given that AXS is not particularly liquid, per CoinGecko just a ~$500K sell-order would move the price down 2%, insider selling could weigh on AXS moving forward. It also seems unlikely that there will be meaningful interest to offset these sales given the project's deteriorating fundamentals.

📚 Bankless Token Bible

Your essential resource for leveling up on crypto tokens and analysis.

Access Bankless Token Bible 👈

Covered Tokens - Their ratings are as follows:

• UNI: Overweight ✅
• SYN: Overweight ✅
• ATOM: Overweight ✅
• DPX: Overweight ✅
• BAL: Overweight ✅
• BTRFLY: Overweight ✅
• GMX: Overweight ✅
• LDO: Overweight ✅
• RPL: Overweight ✅
• AAVE: Overweight ✅
• RBN: Overweight ✅
• MATIC: Overweight ✅
• CRV: Neutral ➖
• OP: Neutral ➖
• INDEX: Neutral ➖
• DYDX: Neutral ➖
• MPL: Neutral ➖
• SUSHI: Underweight ❌
• VELO: Underweight ❌
• SOL: Underweight ❌
• MKR: Underweight ❌
• COMP: Underweight ❌
• TRIBE: Underweight ❌
• AVAX: Underweight ❌
• APE: Underweight ❌
• FRAX: Underweight ❌

Why did you get this report?

Because you subscribe to Bankless and made an effort to level-up by using DeFi protocols. Glad to have you on the journey.