If your school eliminated grades and tests, how would your teachers describe your academic merit in class? They’d probably talk about the contributions you make—do you ask questions, do you contribute to class discussions, are you genuinely interested in the material, did you do any interesting projects, etc.
That’s what colleges are looking for in letters of recommendation.
The grades and tests are important, but they’re just one part of your academic story. Make sure you put the effort in to create the other story—the one that grades and tests don’t measure—too.