Bitconnect and Davor have been a front page all over the crypto news lately. With many investors scared about their investments we decided to write a (longer) blog post to analyze these two platforms, find out what caused Bitconnect’s fall and why Davor is struggling. For us, this is a valuable lesson to be able to grow in a more sustainable way, avoiding similar situations in the future.
Since this post will most likely be read by people who are familiar with the operational methods of lending platforms, I will skip the introduction. We all know how Bitconnect functioned. Deposit your Cryptocurrency, use it to buy BCC, lend your BCC to their platform and expect to see daily returns on your investment.
While, in the beginning, the platform seemed to move slowly, after certain influencers decided to promote the platform on Youtube, Bitconnect quickly reached 2,6B$ in market capitalization and climbed in the list of the TOP 10 Cryptocurrencies (by marketcap).
With their coin worth more than 300$, people decided to do more research and started to claim that Bitconnect was a so called “Ponzi scheme”. Bitconnect apparently made profit by using the money of their new investors to pay of the old investors.
Extremely detailed predictions on how Bitconnect would eventually fall and take people’s money started to pour into Youtube, one of the most interesting being a video of Crypto Investor, who predicted it back in November 2017.
“People hate to think of bad things happening so they always underestimate their likelihood” was the top posted comment on his video. This pretty much summarizes the whole world of Cryptocurrency.
Instead of being mindful and aware of the risks included, people tend to daydream about utopic results without researching in depth how a platform works and generates income, pays back lending interest and referral bonuses.
When popular Youtubers that promoted Bitconnect started to claim they were hacked and proceeded to turn their cryptos into fiat currency to buy houses, cars and other assets, more red flags were raised.
None the less, with heavy marketing, the platform was good on its growth and eventually started promoting their second version of Bitconnect, BitconnectX.
When BitconnectX came out, people started to suspect a possible link between the two platforms. At 50$ per token, BitconnectX caused a lot of controversy and theories. One of the most popular theories found on Reddit and 4Chan was that BitconnectX was created as a last resort to collect enough capital in order to pay off the current investors of Bitconnect. The truth slowly started to reveal itself.
And still people decided to close their eyes and keep investing…
Then, on one sunny morning, Bitconnect announced that their lending platform will shut down. As simple as that. Coins were returned to the wallets. Their excuse? Bad press, attempted DDoS attacks and an official Cease and Desist letter from the US state of security division.
The result? People lost all their savings and, shortly after, their hope.
Deep down I think we all expected this to happen.
And when the most popular Youtubers started to delete all their Youtube videos with regards to Bitconnect people finally started to see the truth and understand the seriousness of the situation.
Still, no one decided to take responsibility of their actions and decided to throw all the blame on others. Some people still do not want to believe that Bitconnect was, indeed, a Ponzi scheme.
It can be ethically wrong from Youtubers to promote a Ponzi scheme in order to profit from it but it is not illegal. This is why these people always start their videos with: “We are not financial advisors…”.
It may, therefore, be a good moment to take responsibility of your actions and invest only what you can afford to lose. It is the hard truth, and the one you need to understand.
Davor was, no doubt, one of the most successful lending platforms following Bitconnect. Their coins quickly reached 170$, just a couple of months after their ICO.
With large returns on their active lends and a proper system in place, Davor is well organized and a smart developed platform.
Yet, shortly after Bitconnect decided to pack up and leave, we saw a dramatic freefall from a 170$ usd to merely 6$. Davor members are disappointed, wondering if Davor is, indeed, a scam as well.
Let’s take a look at what caused the price of Davor to nosedive:
At some point, to increase trust, Davor introduced the “Early capital release” for active lends. In other words, people could get their money back in their wallets by paying a small fee, starting just 14 days after the lend was made.
With the introduction of this function, some people found a way to stop their active loans, return their usd to their wallets while still maintaining DAV coins, resulting in a “money printing machine”. This problem was overlooked due to the fact that processes within the platform are automated. By the time the team realized, the platform had already lost a lot of capital (Official announcements claim this issue is solved now).
Another reason for the current price is the general fear the Bitconnect created to all members of Lending platforms. Due to emotional distress many started to cash out, withdraw their lending profits and trying to leave these platforms as soon as possible. This, once again, raised huge sell walls and caused the price to drop further.
Davor also hosted ICO rounds with high MAX purchases, reaching 2000 tokens per ICO round. This allowed many people to buy an abundance of coins and thus created many “whales” that sold Davor at its peak.
Finally, Davor did not offer the support they should have. People were worried, started to get locked out of their accounts and could not login to see their assets. Mike Klinger wrote yesterday in a Youtube comment:
“At present I am denied access to my DavorCoin account and have $198,000 tied up in there. All my funds (I know, not smart but that’s what I did knowing it was a high risk). I didn’t think so quickly after I’d be denied access. I couldn’t exchange more than 100 Dav every few days into bitcoin and couldn’t send Dav to an external exchange – they are controlling the price (even though I had 1100 Dav in there and growing every day from return on my large Lends). When I kindly wrote in about it they completely locked me out of logging in. So they may have just taken my $191,000. All I got. My hope is it is temporary but regardless, it’s nasty to do without at least an email.”
With little to no support, trust is declining. On top of that, their official telegram announcement channel got hacked today and started posting advertisements of other ICOs. Whoops.
Still, I personally believe Davor will most likely make a comeback. Lending is still active, people can withdraw their money and the price is very volatile. In my opinion is may even be a good idea to enter at this moment. Once the fear of Bitconnect has passed and the sky returns to its blue colors, Davor could see a rise back to where it was. It could take months, weeks or even days. It is hard to say.
What can we learn from Bitconnect and Davor?
- There is no need to worry about Cease and Desist letters since we are operating in Europe and not USA.
- When something sounds too good to be true it probably is. Without any former communication or honesty from the team, there is a lot of speculation. Communication is king and communities should be involved in an agile process as well as getting informed about the plan of action. This is why we keep you up to date with daily support on all our channels. A platform is only as strong as the community that supports it.
- Paying attention to security and proper function of our platform is vital. So many small mistakes can go undetected and result in huge losses. This is the primary reasons we go through all referrals and withdrawals manually. Yes, it may take a bit longer to process, but it is better to be safe than sorry.
- Installing the best possible protection from DDoS attacks will ensure that our platform will be able to withstand the troubles most lending platforms face during their ICO and their normal operation. Therefore, as promised, we do our best to ensure our website is always secured and protected.
- Ensuring our ICO is formed in a way that “whales” and automated bots cannot manipulate. This is the primary reason our ICO is 20 rounds long and the maximum buys decrease over time.
- Create an affiliate bonus ladder that is not deeper than 3 levels in order to be able to pay everyone. By creating 7,8 or even 9 levels of depth, affiliate bonuses become impossible to pay off in the long term (as seen in Bitconnect).
We hope you found this article useful. Keep in mind that we present our personal opinions based on our experience as observers and investors of these platforms. It is good to always perform your own research before investing in anything that creates doubt.