Just because a learning environment is lighter on the pressure than usual does not mean it provides you with less knowledge. Besides, you're making it sound like the ultimate goal of academic success is to get a better grade than your colleagues, which it is not - it's learning.

You're right in the sense that moving away from grades might make it harder for universities to pick out the best students among applicants, but again, defime "best" - is the best student the one with the most knowledge, or the one who was able to systematically turn in homework just good enough to get an A-?