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Dear Bankless Nation,

It’s the first Friday of the month, which means it’s time for a Token Ratings update!

We’ve got some exciting new developments (more below) and an extra helping of coverage additions this time 🎉

This month we’re covering:

• 🆕 GNS, CANTO, MAGIC, SWISE, NEWO
• 🔄 DYDX, LDO, RPL, SUSHI

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

- Bankless Team

🚨 None of the information in this article is financial advice. All of it is for educational purposes only. Please, do your own research. 🚨

Token Ratings | February 2023 📊

Authors: Ben Giove & Jack Inabinet, Bankless Analyst

This report initiates analyst coverage on GNS, CANTO, MAGIC, SWISE and NEWO. It also updates coverage on DYDX while reiterating coverage on LDO, RPL, and SUSHI.

Below, we’ll discuss the rationale behind each rating by delving into the driving catalysts and their 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! Bankless Fund positions and their respective investment theses are also included in the Token Bible (more on this later).

The Token Bible is an investor’s “cheat-sheet” as it’s a one-stop-shop where you can get access to all of the ratings and historical notes for each token covered by the analyst team.

Explaining Our Rating Scales and Risk Scales

Before we dive into the coverage and ratings, let’s take a moment to explain our rating scale. The ratings reflect how we expect each token will perform over a specified (3 or 6 month) time horizon relative to the performance of ETH. 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 ETH.

➖ Neutral: We expect this token to perform in-line with ETH.

❌ Underweight: We expect this token to underperform ETH.

Beginning with this edition, we are also introducing Risk Ratings. These Risk Ratings represent our holistic assessment of the risks associated with each token, including factors such as product traction, valuation, and token liquidity. Each project's risk is measured relative to the other tokens covered in the Token Bible.

The risk scale is as follows:

🟢 Lower Risk: Lower risk profile relative to others covered here.

🟡 Moderate Risk: Average risk profile relative to others covered here.

🔴 Higher Risk: Higher risk profile relative to others covered here.

✅ Overweight

These are tokens that we believe will outperform ETH.

Gains Network (GNS)

Author: Jack Inabinet

• Type: Coverage Initiation
• Risk Rating: Medium
• Rating Time Horizon: 6 months
• Sector: DeFi - Perpetuals DEX
• Current FDV: $192.1M

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

Catalyst Overview:

GNS coverage is being initiated with a rating of overweight due to the protocol’s successful launch on Arbitrum.

Gains Network’s gTrade exchange gives users the ability to take up to 30-150x leverage on a wide variety of alts, bluechips, and stocks, with 1000x leverage on Forex pairs! Previously on Polygon, the Protocol deployed to Arbitrum One on December 31 and TVL has been up only since, increasing 133% to $45M. At the time of analysis, the freshly launched Arbitrum deployment composed 61% of Gains Network’s TVL, with the Protocol’s gDAI vault becoming the largest holder of DAI on Arbitrum.

Potential Price Impact:

Arbitrum TVL has been on a tear! The success of GMX’s unique GLP fee structure has brought large amounts of stables and bluechip cryptos onto the chain, providing tailwind network effects to other protocols. A growing number of successful projects have brought native adoption to the chain, including TreasureDAO, Radiant, Camelot, and Rage Trade. Continued inflows into the Arbitrum universe will provide a greater amount of available collateral for gTrade. Gains Network is well positioned to continue to attract DeFi native trader attention from competitive products (i.e., GMX), due to increased leverage, a much broader range of tradable tickers, and usage of crypto-native collateral, providing continued support for GNS pricing.

Lido (LDO)

Author: Ben Giove

• Type: Reiteration
• Risk Rating: Low
• Rating Time Horizon: 3 months
• Sector: Liquid Staking
• Current FDV: $2.3B

We are reiterating our overweight rating on LDO.

Catalyst Overview:

LDO remains overweight due to the upcoming Shanghai network upgrade.

Shanghai is one of the most highly anticipated upgrades in Ethereum’s history, as it will enable withdrawals from staking. As of writing, 14.2% of the ETH supply is staked, with liquid staking protocols accounting for a 33.3% share of deposits. Lido is the largest staker on the Beacon Chain, with a 29.2% share of staked ETH and a 87.7% share within liquid staking.

Potential Price Impact:

Shanghai should help drive significant revenue growth for Lido, as by fully-derisking staking, the upgrade should lead to a significant inflow into LSDs. While Lido’s market share has trended down since the merge, and will face increasing competitive and social pressure to diversify stake, the massive inflows into liquid staking over the coming months means that the protocol should still benefit from a “rising tide lifts all” boats” environment.

Rocket Pool (RPL)

Author: Ben Giove

• Type: Reiteration
• Risk Rating: Low
• Rating Time Horizon: 3 months
• Sector: Liquid Staking
• Current FDV: $800.5M

We are reiterating our overweight rating on RPL.

Catalyst Overview:

RPL remains overweight due to the upcoming Shanghai network upgrade.

As discussed above, Shanghai is poised to lead to an influx in deposits for LSD issuers, as withdrawals will fully de-risk staking. Rocket Pool currently has a 2.3% and 6.9% share of total Beacon Chain and liquid staking deposits respectively.

Potential Price Impact:

Shanghai is set to catalyze inflows into Rocket Pool, and the decentralized protocol should benefit from not only the growth of the sector as a whole but the significant social push to diversify stake. In addition, Rocket Pool is set to benefit from its upcoming Atlas upgrade, which will lower the ETH collateral requirement from minipool operators from 16 to 8. This expected increase in the rETH supply will lead to an increase in demand for RPL, which must be bonded by minipool operators for use as slashing insurance.

Canto (CANTO)

Author: Ben Giove

• Type: Coverage Initiation
• Risk Rating: High
• Rating Time Horizon: 6 months
• Sector: L1
• Current FDV: $555.2M

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

Catalyst Overview:

CANTO is being assigned this rating due the expectation of continued ecosystem growth.

Canto has seen significant liquidity inflows to start 2023, with more than $104M in assets bridged into the network from Ethereum YTD. The L1 has also seen significant growth in other KPIs like active addresses, transactions, and fees. Canto is also seeing an increasing number of participants in the Canto Online Hackathon, with Season 5 of the event having more than 80 registrations compared to 13 in Season 4.

Potential Price Impact:

The Canto ecosystem looks set to grow over the coming months, as liquidity is flowing into the network and an increasing number of developers are leveraging the network's built-in DeFi primitives. While inflation from liquidity mining emissions could place some downward pressure on the token, an increase in demand for CANTO as the network grows should help offset some of this potential sell-pressure.

Treasure DAO (MAGIC)

Author: Ben Giove

• Type: Coverage Initiation
• Risk Rating: Medium
• Rating Time Horizon: 6 months
• Sector: GameFi
• Current FDV: $689.8M

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

Catalyst Overview:

MAGIC is being assigned this rating due to the expected growth in the Treasure and Arbitrum ecosystems.

There are numerous growth catalysts on the horizon within the Treasure ecosystem, such as an increase in adoption of The Beacon, an RPG game, and the launch of MagicSwap V2, an AMM which will support ERC-20 and ERC-721 trades within a single router. Arbitrum, the L2 in which Treasure is based, is also set to experience significant inflows in the coming months upon launch of the Arbitrum token and subsequent incentive programs.

Potential Price Impact:

The continued growth of games like The Beacon and launch of MagicSwap should drive long-term value to MAGIC, which is used as money within the Treasure ecosystem. Treasure should also benefit from the launch of Arbitrum’s token, of which they are likely to get a considerable allocation through either a direct airdrop or governance. Furthermore, MAGIC should benefit from less uncertainty surrounding unlocks, as a 14.3% supply unlock was completed on January 26.

StakeWise (SWISE)

Author: Ben Giove

• Type: Coverage Initiation
• Risk Rating: High
• Rating Time Horizon: 6 months
• Sector: Liquid Staking
• Current FDV: $150.1M

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

Catalyst Overview:

StakeWise is being assigned this rating due to the Shanghai upgrade and launch of StakeWise V3.

Ethereum’s Shanghai upgrade will fully de-risk staking by enabling withdrawals, and is set to catalyze a boom in liquid staking as a result. StakeWise is currently the fifth largest liquid staking provider, with 1.3% market share within the sector and accounts for 0.4% of all Beacon Chain deposits. While it currently utilizes a two token model with permissioned validation, in the coming months StakeWise is set to launch V3, which will enable permissionless validation through the use of isolated vaults (similar to Uniswap or Fuse pools).

Potential Price Impact:

Shanghai and the launch of V3 are poised to lead to significant growth in StakeWise’s market share and revenues, with the decentralization and customizability of the protocol likely to attract both stakers and validators alike. In addition, the value created by V3 should more easily accrue to tokenholders, as a proposed tokenomics upgrade supported by the core team will allow SWISE holders to earn a share commissions from an individual vault in exchange for staking their tokens as slashing insurance.

New Order DAO (NEWO)

Author: Ben Giove

• Type: Coverage Initiation
• Risk Rating: High
• Rating Time Horizon: 6 months
• Sector: Venture DAO
• Current FDV: $25.0M

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

Catalyst Overview:

New Order DAO is being assigned this rating due to the growth of [Redacted] Cartel and Y2K Finance.

New Order’s two largest incubated projects are [Redacted] Cartel, a DeFi conglomerate, and Y2K Finance, a protocol for hedging/speculating on risk in pegged assets, with the two trading at FDVs of $198M and $41M respectively. New Order owns 5% of the BTRFLY supply and 10% of the Y2K supply, with its combined stakes being worth ~$14.0M at current prices.

Potential Price Impact:

The continued growth of Redacted and Y2K should help lead to long-term value accrual for the DAO treasury and veNEWO lockers, who in the future will earn 20% of yield generated from all treasury assets including these positions. This success of these two high profile incubees should also help increase the ability for New Order to attract and incubate high quality projects in the future. In addition, NEWO should also benefit from a narrowing of discount to RFV, as with a MC of $5.9M, the token is trading a 2.4x discount to the value of these positions alone.

➖ Neutral

These are tokens that we believe will perform in-line with ETH.

dYdX (DYDX)

Author: Jack Inabinet

• Type: Upgrade
• Risk Rating: Medium
• Ratings Time Horizon: 3 Months
• Sector: DeFi - Perpetuals DEX
• Current FDV: $3.6B

We are upgrading DYDX from underweight to neutral.

Catalyst Overview:

DYDX is being upgraded due to the postponement of impending token unlocks.

After announcing 150M of DYDX unlocks scheduled for February would be postponed until December 2023, with 30% of the original 150M DYDX tokens set to unlock on December 1 and the remaining via monthly unlocks thereafter, a major potential supply pressure was removed from the DYDX pricing equation. Currently, the circulating supply of DYDX is 148M: scheduled unlocks would have doubled this! The driving factor for Bankless’s underweight rating was impending unlocks, now a near-term non-factor.

Potential Price Impact:

Note the 3 month rating timeline, anon!

While the price of DYDX will likely appreciate in the near-term, the team is employing emergency stopgap measures to protect token price, currently down 88% from its ATH. dYdX V4 is set to launch as a stand-alone Cosmos-based chain. If the team intends to use DYDX as the fee token of its chain, it is crucial to inflate token PRICE as much as possible to avoid inflating token SUPPLY to secure the network; postponement of unlocks shows that this may be their intent. DYDX continues to face longer-term structural headwinds from looming unlocks and potential token inflation to secure the dYdX chain. The can has simply been kicked down the road, not removed from the equation!

❌ Underweight

These are tokens that we believe will underperform ETH over the next six months.

SushiSwap (SUSHI)

Author: Jack Inabinet

• Type: Reiteration
• Relative Risk Rating: High
• Ratings Time Horizon: 6 Months
• Sector: DeFi - Spot DEX
• Current FDV: $349.3M

We are reiterating our underweight rating on SUSHI.

Catalyst Overview:

SUSHI continues to face strong headwinds after the Protocol voted to divert 100% of protocol fee revenue to the treasury.

SushiSwap Head Chef Jared Gray noted in December that failures to diversify the community treasury, despite best efforts to cut costs, left the project with approximately 1.5 years of runway for operations. By tapping into 100% of protocol revenue, Gray hoped to enable continuous operation for the foreseeable future. Prior to this change, 90% of revenue went to xSUSHI stakers, with 10% remitted to the treasury.

Currently, the SushiSwap team incurs $5M in annual expenditures.

Potential Price Impact:

Deprecation of the Kanpai fee share removed a positive influence on SUSHI price. While it is possible to argue that by doing so, SushiSwap bolstered its longevity and the move can be viewed as a net positive, we believe that this action attests to ongoing struggles faced by the Protocol.

SushiSwap is gasping for its last breath of air, not engaging in shrewd governance. In a market saturated with more established names and upstart DEXs alike, SushiSwap is simply losing its edge. While Gray sees up to 1.5 years of runway, volatile crypto market conditions could truncate this projection. Currently, nearly 90% of the SushiSwap treasury is composed of non-stable assets, with 84% represented by native SUSHI and xSUSHI tokens. Continued struggles at SushiSwap would not bode well for the value of SUSHI or the runway. SUSHI may be on its last legs.

🏦 Introducing Bankless Fund

The Token Ratings and Token Bible are getting an upgrade.

We are excited to announce that we are integrating Bankless Fund, a private investment club made up of Bankless team members, into the Token Bible!

The Bankless Fund is how we put our own skin in the game with our Token Ratings, as it takes long positions in what we feel are our highest conviction, highest upside (and therefore highest risk) overweights.

Bankless Premium subscribers will get an exclusive peek behind the curtain, as we will be publishing our thesis behind each Bankless Fund investment in the Token Bible.

NOTE: YOU CANNOT INVEST IN THE BANKLESS FUND. If you’d like to read more about Bankless Fund, click here.

📓 Bankless Token Bible

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

Access Bankless Token Bible

Additional Covered Tokens - Their ratings are as follows:

• UNI: Overweight ✅
• DPX: Overweight ✅
• BTRFLY: Overweight ✅
• GMX: Overweight ✅
• AAVE: Overweight ✅
• RBN: Overweight ✅
• MATIC: Overweight ✅
• BNB: Overweight ✅
• ENS: Overweight ✅
• INDEX: Overweight ✅
• ATOM: Overweight ✅
• CRV: Neutral ➖
• OP: Neutral ➖
• MPL: Neutral ➖
• SNX: Neutral ➖
• PERP: Neutral ➖
• FXS: Neutral ➖
• SAND: Underweight ❌
• APT: Underweight ❌
• AXS: Underweight ❌
• SOL: Underweight ❌
• MKR: Underweight ❌
• COMP: Underweight ❌
• AVAX: Underweight ❌
• APE: Underweight ❌
• IMX: Underweight ❌
• ILV: Underweight ❌

Why did you get this report?

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