The devaluation of collateralized assets had similar backlashes in both cases. The way out of the mortgage crisis does not seem pertinent in entities such as Celsius.

The case of Celsius Network attracted interest in the digital asset space because many users think their funds might be in danger due to the liquidity crisis harming the network. This situation is similar to the mortgage crisis that affected the United States of America in 2008.

According to an analysis by Michael P. Regan for the Bloomberg news agency, the first common point between both situations is the remortgaging of assets and turning them into collateral loans.

Bitcoin (BTC) investment and lending platform Celsius reported on Sunday, June 12, that it was suspending fund withdrawals for its users. This situation happens due to various aspects that split the entity’s liquidity.

The drop in the price of the synthetic ether (ETH) token stETH, handled by the Lido staking pool, was one of the possible causes, given that Celsius counted on 445,000 stETH under its control.

Also, as Celsius employed the funds of its users to invest in other protocols and generate profits, the decrease in the price of BTC led to liquidating its collateral on some lending platforms. To prevent this situation from happening, the entity had to house more collateral on platforms like MakerDAO, the stable coin DAI (DAI) issuer.

On the other hand, the mortgage crisis of 2008 was vast growth in mortgage loans in the United States of America. People requested them to take advantage of the low-interest rates that the State used to improve consumption after the September 2001 attacks.

However, mortgage banks ended up bringing loans to citizens who could not afford them. Even many loans had a variable interest rate, so in 2006, when the rate reached high peaks again, they could not meet their debts. This situation led to an increase in sellers, multiplying the supply of houses on the market and decreasing the property values.

The Celsius Case and the 2008 Mortgage Crisis Might be Related

One of Michael Regan’s statements focuses on the fact that in the terms and conditions of use regarding Celsius, they decide that the user allows the network to mortgage and remortgage the digital assets that users house there.

If Celsius faces bankruptcy, users could lose the funds they housed in it. It even clarifies the possibility that these affected people have zero legal rights to complain about this eventual situation.

In the mortgage crisis of 2008, one of the factors that unleashed the collapse of the real estate sector was remortgaging. When applying for a mortgage loan, a person asks a financial entity for funds by putting their house as collateral.

By: Jenson Nuñez

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