A collapse within the value of Ethereum may destroy the blockchain’s potential to settle transactions and freeze greater than $800 billion in property, a Financial institution of Italy analysis paper warns.
The paper, written by Claudia Biancotti from the central financial institution’s Data Expertise Directorate, outlined a contagion state of affairs during which ETH’s value collapse degrades the blockchain’s safety infrastructure to the purpose of failure.
Such a failure would ensnare and jeopardize the tokenized shares, bonds, and stablecoins that enormous monetary establishments are more and more inserting on public ledgers, the report argues.
Primarily, this paper questions the idea that regulated property issued on public blockchains are insulated from the volatility of the underlying cryptocurrency.
In keeping with the report, the trustworthiness of the cost layer in permissionless networks like Ethereum is carefully tied to the market worth of unbacked tokens.
The entice of validator economics
The central argument of this paper is predicated on the elemental variations between conventional monetary market infrastructure and permissionless blockchains.
In conventional finance, cost methods are operated by regulated establishments with formal supervision, capital necessities, and a central financial institution backstop. These entities are paid in fiat foreign money to make sure that the transaction is legally and technically accomplished.
In distinction, the Ethereum community depends on a decentralized workforce of “verifiers.” These are unbiased operators that validate and full transactions.
Nonetheless, they don’t seem to be legally required to supply companies to the monetary system. Subsequently, they’re motivated by revenue.
Validators incur actual prices by way of {hardware}, web connectivity, and cybersecurity. Nonetheless, their revenues are primarily denominated in ETH.
The paper notes that even when staking yields are secure in token phrases, a “vital and sustained” decline within the greenback value of ETH may wipe out the real-world worth of the proceeds.
If the income generated from validating transactions is lower than the price of working the tools, a rational enterprise will exit of enterprise.
The paper describes a possible “downward value spiral with persistent unfavorable expectations” during which stakeholders rush to promote their holdings to keep away from additional losses.
Promoting staked ETH requires “de-staking,” which successfully deactivates the validator. The report warns that in excessive restriction situations, “no validators means the community will fail.”
In such a scenario, the cost layer turns into successfully non-functional, permitting customers to submit transactions that won’t be processed. Subsequently, property residing on-chain grow to be “immovable” no matter off-chain creditworthiness.
When your safety price range reaches its restrict
Nonetheless, this menace extends past a easy processing outage. The paper argues that value collapse considerably reduces the associated fee for a malicious attacker to take over a community.
This vulnerability is framed by the idea of an “financial safety price range,” outlined because the minimal funding required to realize sufficient stake on a community to mount a sustained assault.
Ethereum permits attackers to govern the consensus mechanism by controlling over 50% of the lively verification energy. This example permits for double spending and censorship of sure transactions.
The paper estimates that as of September 2025, Ethereum’s financial safety price range is roughly 17 million ETH, or roughly $71 billion. Underneath regular market situations, this excessive price makes an assault “impossible”, the authors say.
Nonetheless, safety budgets are usually not static. It fluctuates relying available on the market value of the token. When the worth of ETH collapses, the greenback price of disrupting the community additionally falls.
On the similar time, as trustworthy validators exit the market to chop their losses, the whole pool of lively stakes shrinks, additional reducing the brink for attackers to realize majority management.
This paper outlines the perverse and inverse relationship. As the worth of a community’s native token approaches zero, the price of attacking the infrastructure drops sharply, however the presence of different worthwhile property might enhance the motivation to assault the infrastructure.
The “secure” asset entice
This dynamic poses explicit dangers to the proliferation of “actual world” property (RWA) and stablecoins on the Ethereum community.
As of late 2025, Ethereum hosts greater than 1.7 million property with a complete capitalization of greater than $800 billion. This determine contains the mixed market capitalization of the 2 largest dollar-backed stablecoins, roughly $140 billion.
In a state of affairs the place ETH loses nearly all of its worth, the token itself could be of little curiosity to a classy attacker.
Nonetheless, the infrastructure will nonetheless maintain billions of {dollars} of tokenized Treasury payments, company bonds, and fiat-backed stablecoins.
The report claims that these property would be the major targets. If an attacker positive factors management of a weakened chain, they may theoretically double-spend these tokens by sending them to an change to promote for fiat foreign money, whereas additionally sending them to a different pockets on the chain.
This has a direct influence on the normal monetary system.
If issuers, broker-dealers, or funds have a authorized obligation to redeem these tokenized property at face worth, however on-chain possession data are compromised or manipulated, monetary stress shifts from the crypto market to real-world stability sheets.
With this in thoughts, the newspaper warns that the harm shouldn’t be restricted to speculative crypto merchants, “particularly if the issuer has a authorized obligation to refund at face worth.”
There are not any emergency exits
In conventional monetary crises, panic usually causes a “flight to security”, with members transferring their funds from misery to secure places. Nonetheless, such a transition will not be attainable within the occasion of blockchain infrastructure collapse.
For buyers holding property tokenized on the failed Ethereum community, a flight to security may imply transferring these property to a different blockchain. Nonetheless, this poses a significant impediment to this “infrastructure change.”
First, cross-chain bridges, the protocols used to maneuver property between blockchains, are notoriously susceptible to hacking and will not scale nicely sufficient to deal with mass outflows in occasions of panic.
These bridges may very well be uncovered to assaults, and additional uncertainty may result in property being “speculated” and “weak stablecoins” being unpegged.
Second, the decentralized nature of the ecosystem makes coordination troublesome. Not like centralized inventory exchanges that may halt buying and selling to quell panic, Ethereum is a worldwide system with conflicting incentives.
Third, a good portion of your property could also be locked up in DeFi protocols.
In keeping with knowledge from DeFiLlama, roughly $85 billion is locked in DeFi contracts on the time of writing, with many of those protocols performing as automated asset managers with governance processes that can’t instantly reply to failures within the settlement layer.
Moreover, the paper emphasizes that there isn’t any “lender of final resort” within the cryptocurrency ecosystem.
Ethereum has built-in mechanisms to gradual validator exits, limiting processing to roughly 3,600 exits per day, however it is a technical throttle, not an financial backstop.
The writer additionally rejected the concept deep-pocketed entities like exchanges may stabilize collapsing ETH costs via “bulk purchases,” saying it was “impossible to work” in a real disaster of confidence, the place the market may assault the rescue fund itself.
regulatory dilemma
The Financial institution of Italy’s paper finally positions this contagion danger as a urgent coverage challenge: Ought to permissionless blockchains be handled as important monetary market infrastructure?
The authors be aware that whereas some firms choose permissioned blockchains operated by approved events, the enchantment of public chains stays sturdy because of their attain and interoperability.
The paper cites the BlackRock BUIDL Fund, a tokenized cash market fund obtainable on Ethereum and Solana, as a first-rate instance of early-stage conventional monetary exercise on public rail.
Nonetheless, the evaluation means that this infrastructure import comes with distinctive dangers in that “the well being of the cost layer is tied to the market value of speculative tokens.”
The paper concludes that central banks “can’t be anticipated” to jack up the costs of privately issued native tokens simply to make sure the safety of cost infrastructure. As an alternative, it means that regulators might have to impose strict enterprise continuity necessities on issuers of the underlying property.
Essentially the most particular proposal within the doc requires issuers to keep up an off-chain possession database and specify a pre-selected “contingency chain.” This is able to theoretically enable property to be ported to a brand new community within the occasion of a failure of the underlying Ethereum layer.
The newspaper warns that with out such safeguards, the monetary system dangers slipping right into a sleepwalking state of affairs during which official monetary plumbing shuts down as a result of collapse of speculative crypto property.