Bankless Token Ratings | March 2023

What does Bankless think about ATOM, OP, FXS, UNI and GFLY?
Mar 3, 20236 min read

Dear Bankless Nation,

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

This month we’re covering:

  • 🆕 GFLY
  • 🔄 FXS, OP, UNI, ATOM

The first token rating 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. 🚨

This report initiates analyst coverage on GFLY. It also updates coverage on UNI, FXS, and ATOM while reiterating coverage on OP.

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.

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. It’s updated throughout the month, meaning that premium subscribers get access to coverage invitations and ratings changes in real time!

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:

✅ Bullish: We expect this token to outperform ETH.

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

❌ Bearish: 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.

Frax Finance (FXS)

  • Type: Upgrade
  • Risk Rating: Medium
  • Rating Time Horizon: 6 months
  • Sector: DeFi - Stablecoins
  • Current FDV: $1.1B

FXS is being upgraded from neutral to bullish.

Catalyst Overview:

Frax is being upgraded due to the FIP-188 governance proposal.

FIP-188 is a governance proposal to transition FRAX to a 100% collateralization ratio. FRAX utilizes a hybrid model in which it is partially collateralized and partially algorithmic. Currently, the stablecoin is 92% collateralized, with the remaining 8% “backed” by FXS and not exogenous assets.

FIP-188 proposes to change this model by increasing the collateral ratio to 100%. The protocol plans to do this gradually over time by retaining its earnings (rather than allocating them to FXS buybacks as they have done previously) as well as through purchasing up to $3M per month in frxETH, Frax’s liquid staking derivative.

The proposal passed a snapshot vote with near unanimous approval, with 98.1% in favor compared to just 1.9% opposed.

Potential Price Impact:

Although the FXS buyback program is being wound down, Frax’s transition to a 100% collateralization ratio should improve FXS’s medium to long-term prospects by removing the hyperinflationary tail risk that exists with the current fractional-algorithmic model.

With veFXS lockers still set to receive a portion of the revenues generated by frxETH, the protocol’s fast-growing LSD solution, FXS is in good position to continue its outperformance over the next several months.

BattleFly (GFLY)

  • Type: Coverage Initiation
  • Risk Rating: High
  • Rating Time Horizon: 6 months
  • Sector: GameFi
  • Current FDV: $40.9M

We are initiating coverage of GFLY with a rating of bullish.

Catalyst Overview:

GFLY is being assigned this rating due to the release of the battlegrounds game mode on February 6. Battlegrounds is a PVP auto-battler which uses “risk-to-earn” model where players can pit their battleflies against one another to win MAGIC.

While it’s been less than two weeks since the mode was released, the game mode has shown strong signs of PMF. During this period, BattleFly has generated $116K in revenue ($4.3M annualized) from the sale of mod packs (upgrades for battleflies) and gameplay revenue via  MAGIC winnings from battles. The game has done this with just an average of 498 users for an average revenue per user of $232.93.

Potential Price Impact:

While battlegrounds is in early access and will only be playable for another eleven weeks, its early success suggests that BattleFly has found PMF and should contribute to an increase in users upon the full release of the game. In turn, this should help accrue value to GFLY, as holders can stake the token to earn a share of revenues generated by the game. GFLY should also benefit from increased interest in “Arbitrum coins” in anticipation of the launch of its token, as well as increased growth in GameFi as a whole and the Treasure ecosystem in the coming months.

➖ Neutral

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

Optimism (OP)

  • Type: Ratings Reiteration
  • Risk Rating: Low
  • Rating Time Horizon: 3 months
  • Sector: L2
  • Current FDV: $11.6B

We are reiterating our neutral rating for OP.

Catalyst Overview:

OP remains neutral due to the announcement of Base.

Base is a generalized optimistic rollup developed by Coinbase. Base will settle to Ethereum and is built using the Optimism’s OP Stack. The OP stack enables developers to create custom L2s that will be capable of interoperating with another. Base is set to fully launch later in 2023, with Coinbase supporting its growth with an ecosystem fund.

Potential Price Impact:

The launch of Base represents clear validation of Optimism’s long-term roadmap and tech stack. Coinbase choosing to build with the OP Stack dramatically increases the odds that it emerges as the standard for creating custom networks while also helping attract long-term developer interest in the Optimism ecosystem as a whole.

However, in the short run, it’s unlikely that this will lead to any direct inflows into Optimism. This, coupled with OP’s $12.5B fully-diluted valuation and the significant run-up in the price of the token in advance of the move, decreases the odds that the token will substantially outperform in the immediate future.

Uniswap (UNI)

  • Type: Downgrade
  • Risk Rating: Low
  • Rating Time Horizon: 3 months
  • Sector: DeFi - DEX
  • Current FDV: $6.6B

UNI is being downgraded from bullish to neutral.

Catalyst Overview:

UNI is being downgraded due to a failure to turn on the protocol fee-switch.

UNI holders have the ability to turn on what’s known as the protocol fee-switch, which is a mechanism that allows the protocol to take between a 10-25% cut of LP fees on a per-pool basis. A proposal to turn on the fee-switch for three pools had passed the first two phases of Uniswap’s governance, but has yet to be put up for a final, binding on-chain vote.

Potential Price Impact:

While their dominant competitive positioning remains intact, Uniswap’s failure to turn on the protocol fee-switch may weigh on the price of the token, as investors question whether the DAO (and in the future holders) will ever be able to capture value from the protocol itself.

❌ Underweight

These are tokens that we believe will underperform ETH.

Cosmos Hub (ATOM)

  • Type: Downgrade
  • Risk Rating: Low
  • Rating Time Horizon: 3 months
  • Sector: L1
  • Current FDV: $3.6B

ATOM is being downgraded from bullish to bearish.

Catalyst Overview:

ATOM is being downgraded due to the announcement of Base.

Base is a generalized rollup developed by Coinbase that will settle to Ethereum. Base is built using OP Stack, a framework from Optimism which allows developers to create custom L2s. Base will launch on mainnet in 2023 with support from Coinbase through an ecosystem fund.

Potential Price Impact:

Base represents a blow to Cosmos’s app-chain thesis. Rather than develop its own sovereign L1 using the Cosmos SDK, Coinbase has chosen to build Base as an Ethereum L2. This will likely lead to other projects following Coinbase’s example in eschewing Cosmos and the app-chain model, weakening the long-term bull case for ATOM as fewer chains being built will likely reduce demand for Cosmos Hub blockspace from interchain security and other uses in the (still to be passed) ATOM 2.0 proposal such as the interchain scheduler and allocator. While projects like dYdX are building with Cosmos, Coinbase’s decision will likely take the air out of the ATOM balloon in the immediate future.

📓 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:

  • BTRFLY: Overweight ✅
  • GMX: Overweight ✅
  • AAVE: Overweight ✅
  • RBN: Overweight ✅
  • MATIC: Overweight ✅
  • ENS: Overweight ✅
  • INDEX: Overweight ✅
  • GNS: Overweight ✅
  • RPL: Overweight ✅
  • LDO: Overweight ✅
  • CANTO: Overweight ✅
  • SWISE: Overweight ✅
  • MAGIC: Overweight ✅
  • NEWO: Overweight ✅
  • CRV: Neutral ➖
  • OP: Neutral ➖
  • SNX: Neutral ➖
  • DYDX: Neutral ➖
  • APT: Underweight ❌
  • SUSHI: Underweight ❌
  • SOL: Underweight ❌
  • MKR: Underweight ❌
  • AVAX: Underweight ❌
  • APE: Underweight ❌

Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.

Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.

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