An Ethereum worth collapse may break the blockchain’s capability to settle transactions and freeze over $800 billion in property, a Financial institution of Italy analysis paper warns.
The paper, authored by Claudia Biancotti of the central financial institution’s Directorate Common for Data Expertise, outlined a contagion situation the place ETH’s worth collapse degrades the blockchain’s safety infrastructure to the purpose of failure.
Such a breakdown, the report argues, would lure and compromise tokenized shares, bonds, and stablecoins that main monetary establishments are more and more putting on public ledgers.
Primarily, the paper challenges the belief that regulated property issued on public blockchains are insulated from the volatility of the underlying cryptocurrency.
In keeping with the report, the reliability of the settlement layer in permissionless networks like Ethereum is inextricably tied to the market worth of an unbacked token.
The validator economics lure
The paper’s core argument rests on the basic distinction between conventional monetary market infrastructure and permissionless blockchains.
In conventional finance, settlement methods are operated by regulated entities with formal oversight, capital necessities, and central financial institution backstops. These entities are paid in fiat foreign money to make sure trades are finalized legally and technically.
In distinction, the Ethereum community depends on a decentralized workforce of “validators”. These are impartial operators who confirm and finalize transactions.
Nevertheless, they don’t seem to be legally mandated to serve the monetary system. So, they’re motivated by revenue.
Validators incur real-world prices for {hardware}, web connectivity, and cybersecurity. But, their income is denominated primarily in ETH.
The paper notes that even when staking yields stay secure in token phrases, a “substantial and protracted” drop within the greenback worth of ETH may obliterate the real-world worth of these earnings.
If the income generated by validating transactions falls under the price of operating the tools, rational operators will shut down.
The paper describes a possible “downward worth spiral accompanied by persistent detrimental expectations,” the place stakers rush to promote their holdings to keep away from additional losses.
Promoting staked ETH requires “unstaking,” which successfully deactivates a validator. The report warns that in an excessive restrict situation, “no validators signifies that the community doesn’t work anymore.”
Underneath these situations, the settlement layer would successfully stop to perform, leaving customers in a position to submit transactions which might be by no means processed. So, property residing on the chain would grow to be “immovable,” no matter their off-chain creditworthiness.
When safety budgets break
In the meantime, this risk extends past a easy halt in processing. The paper argues {that a} worth collapse would drastically decrease the associated fee for malicious actors to hijack the community.
This vulnerability is framed via the idea of the “financial safety price range”— outlined because the minimal funding required to accumulate sufficient stake to mount a sustained assault on the community.
On Ethereum, controlling greater than 50% of the lively validation energy permits an attacker to govern the consensus mechanism. This case would allow double-spending and the censorship of particular transactions.
As of September 2025, the paper estimates Ethereum’s financial safety price range was roughly 17 million ETH, or roughly $71 billion. Underneath regular market situations, the creator notes, this excessive price makes an assault “extraordinarily unlikely.”
Nevertheless, the safety price range is just not static; it fluctuates with the token’s market worth. If ETH’s worth collapses, the greenback price to deprave the community falls in tandem.
Concurrently, as sincere validators exit the market to chop losses, the whole pool of lively stake shrinks, additional decreasing the brink for an attacker to achieve majority management.
The paper outlines a perverse inverse relationship: As the worth of the community’s native token approaches zero, the price of attacking the infrastructure plummets, but the motivation to assault it might improve as a result of presence of different useful property.
The lure for ‘protected’ property
This dynamic poses a particular danger to the “real-world” property (RWAs) and stablecoins which have proliferated on the Ethereum community.
As of late 2025, Ethereum hosted greater than 1.7 million property with a complete capitalization exceeding $800 billion. This determine included roughly $140 billion in mixed market capitalization for the 2 largest dollar-backed stablecoins.
In a situation the place ETH has misplaced practically all its worth, the token itself can be of little curiosity to a complicated attacker.
Nevertheless, the infrastructure would nonetheless home billions of {dollars} in tokenized treasury payments, company bonds, and fiat-backed stablecoins.
The report argues these property would grow to be the first targets. If an attacker positive factors management of the weakened chain, they might theoretically double-spend these tokens by sending them to an change to be offered for fiat whereas concurrently sending them to a unique pockets on-chain.
This brings the shock instantly into the normal monetary system.
If issuers, broker-dealers, or funds are legally sure to redeem these tokenized property at face worth, however the on-chain possession information are compromised or manipulated, the monetary stress transfers from the crypto market to real-world steadiness sheets.
Contemplating this, the paper warns that the harm wouldn’t be confined to speculative crypto merchants, “particularly if issuers had been legally sure to reimburse them at face worth.”
No emergency exit
In typical monetary crises, panic usually triggers a “flight to security,” by which contributors shift capital from distressed to secure venues. Nevertheless, such a migration could also be unattainable throughout a collapse of blockchain infrastructure.
For an investor holding a tokenized asset on a failing Ethereum community, a flight to security may imply transferring that asset to a different blockchain. But, that presents important obstacles to this “change in infrastructure.”
First, cross-chain bridges, that are protocols used to maneuver property between blockchains, are notoriously susceptible to hacks and should not scale to deal with a mass exodus throughout a panic.
These bridges may come below assault, and additional rising uncertainty may trigger property to be “speculated in opposition to,” probably inflicting “weaker stablecoins” to de-peg.
Second, the ecosystem’s decentralized nature makes coordination tough. In contrast to a centralized inventory change that may halt buying and selling to chill a panic, Ethereum is a world system with conflicting incentives.
Third, a good portion of property could also be trapped in DeFi protocols.
In keeping with DeFiLlama information, about $85 billion is locked in DeFi contracts on the time of writing, and lots of of those protocols act as automated asset managers with governance processes that can’t reply immediately to a settlement-layer failure.
Moreover, the paper highlights the shortage of a “lender of final resort” within the crypto ecosystem.
Whereas Ethereum has built-in mechanisms to sluggish the pace of validator exits — capping processing to about 3,600 exits per day — these are technical throttles, not financial backstops.
The creator additionally dismissed the concept that deep-pocketed actors like exchanges may stabilize a crashing ETH worth via “large buys,” calling it “impossible to work” in a real disaster of confidence the place the market may assault the rescue fund itself.
A regulatory dilemma
The Financial institution of Italy paper in the end frames this contagion danger as a urgent coverage query: Ought to permissionless blockchains be handled as vital monetary market infrastructure?
The creator notes that whereas some corporations want permissioned blockchains run by licensed entities, the attract of public chains stays sturdy on account of their attain and interoperability.
The paper cites the BlackRock BUIDL fund, a tokenized cash market fund obtainable on Ethereum and Solana, as a primary instance of early-stage conventional finance exercise on public rails.
Nevertheless, the evaluation means that importing this infrastructure comes with the distinctive danger that the “well being of the settlement layer is tied to the market worth of a speculative token.”
The paper concludes that central banks “can’t be anticipated” to prop up the worth of privately issued native tokens merely to maintain the settlement infrastructure safe. As a substitute, it means that regulators might must impose strict enterprise continuity necessities on issuers of backed property.
Essentially the most concrete proposal within the doc requires issuers to take care of off-chain databases of possession and to designate a pre-selected “contingency chain.” This is able to theoretically enable porting property to a brand new community if the underlying Ethereum layer fails.
With out such safeguards, the paper warns, the monetary system dangers sleepwalking right into a situation the place a crash in a speculative crypto asset halts the plumbing of official finance.
