An Ethereum value collapse might break the blockchain’s capacity to settle transactions and freeze over $800 billion in belongings, a Financial institution of Italy analysis paper warns.
The paper, authored by Claudia Biancotti of the central financial institution’s Directorate Normal for Data Know-how, outlined a contagion state of affairs the place ETH’s value 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 belongings 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 techniques are operated by regulated entities with formal oversight, capital necessities, and central financial institution backstops. These entities are paid in fiat forex 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.
Nonetheless, they aren’t 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 steady in token phrases, a “substantial and protracted” drop within the greenback value of ETH might obliterate the real-world worth of these earnings.
If the income generated by validating transactions falls under the price of operating the gear, rational operators will shut down.
The paper describes a possible “downward value spiral accompanied by persistent unfavorable 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 state of affairs, “no validators signifies that the community doesn’t work anymore.”
Underneath these circumstances, the settlement layer would successfully stop to operate, leaving customers capable of submit transactions which are by no means processed. So, belongings residing on the chain would turn out to be “immovable,” no matter their off-chain creditworthiness.
When safety budgets break
In the meantime, this menace extends past a easy halt in processing. The paper argues {that a} value collapse would drastically decrease the associated fee for malicious actors to hijack the community.
This vulnerability is framed by the idea of the “financial safety price range”— outlined because the minimal funding required to amass sufficient stake to mount a sustained assault on the community.
On Ethereum, controlling greater than 50% of the energetic validation energy allows 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 circumstances, the creator notes, this excessive value makes an assault “extraordinarily unlikely.”
Nonetheless, the safety price range just isn’t static; it fluctuates with the token’s market value. If ETH’s value collapses, the greenback value to deprave the community falls in tandem.
Concurrently, as trustworthy validators exit the market to chop losses, the full pool of energetic stake shrinks, additional reducing the brink for an attacker to realize 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 inducement to assault it might enhance as a result of presence of different priceless belongings.
The lure for ‘secure’ belongings
This dynamic poses a selected danger to the “real-world” belongings (RWAs) and stablecoins which have proliferated on the Ethereum community.
As of late 2025, Ethereum hosted greater than 1.7 million belongings 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 state of affairs the place ETH has misplaced almost all its worth, the token itself could be of little curiosity to a complicated attacker.
Nonetheless, the infrastructure would nonetheless home billions of {dollars} in tokenized treasury payments, company bonds, and fiat-backed stablecoins.
The report argues these belongings would turn out 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 alternate to be bought for fiat whereas concurrently sending them to a distinct pockets on-chain.
This brings the shock immediately into the standard monetary system.
If issuers, broker-dealers, or funds are legally sure to redeem these tokenized belongings 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 typically triggers a “flight to security,” by which individuals shift capital from distressed to steady venues. Nonetheless, such a migration could also be not possible throughout a collapse of blockchain infrastructure.
For an investor holding a tokenized asset on a failing Ethereum community, a flight to security might 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 belongings between blockchains, are notoriously weak to hacks and should not scale to deal with a mass exodus throughout a panic.
These bridges might come below assault, and additional rising uncertainty might trigger belongings to be “speculated in opposition to,” doubtlessly inflicting “weaker stablecoins” to de-peg.
Second, the ecosystem’s decentralized nature makes coordination troublesome. In contrast to a centralized inventory alternate that may halt buying and selling to chill a panic, Ethereum is a world system with conflicting incentives.
Third, a good portion of belongings could also be trapped in DeFi protocols.
In keeping with DeFiLlama knowledge, about $85 billion is locked in DeFi contracts on the time of writing, and plenty 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 gradual 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 might stabilize a crashing ETH value by “huge buys,” calling it “most unlikely to work” in a real disaster of confidence the place the market would possibly assault the rescue fund itself.
A regulatory dilemma
The Financial institution of Italy paper finally frames this contagion danger as a urgent coverage query: Ought to permissionless blockchains be handled as crucial monetary market infrastructure?
The creator notes that whereas some companies favor permissioned blockchains run by approved entities, the attract of public chains stays robust as a result of their attain and interoperability.
The paper cites the BlackRock BUIDL fund, a tokenized cash market fund out there on Ethereum and Solana, as a chief instance of early-stage conventional finance exercise on public rails.
Nonetheless, 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 value 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 an alternative, it means that regulators could must impose strict enterprise continuity necessities on issuers of backed belongings.
Probably 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 might theoretically enable porting belongings 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 state of affairs the place a crash in a speculative crypto asset halts the plumbing of official finance.
