A collapse in the price of Ethereum could destroy the blockchain’s ability to settle transactions and freeze more than $800 billion in assets, a Bank of Italy research paper warns.
The paper, written by Claudia Biancotti from the central bank’s Information Technology Directorate, outlined a contagion scenario in which ETH’s price collapse degrades the blockchain’s security infrastructure to the point of failure.
Such a failure would ensnare and jeopardize the tokenized stocks, bonds, and stablecoins that large financial institutions are increasingly placing on public ledgers, the report argues.
Essentially, this paper questions the assumption that regulated assets issued on public blockchains are insulated from the volatility of the underlying cryptocurrency.
According to the report, the trustworthiness of the payment layer in permissionless networks like Ethereum is closely tied to the market value of unbacked tokens.
The trap of validator economics
The central argument of this paper is based on the fundamental differences between traditional financial market infrastructure and permissionless blockchains.
In traditional finance, payment systems are operated by regulated institutions with formal supervision, capital requirements, and a central bank backstop. These entities are paid in fiat currency to ensure that the transaction is legally and technically completed.
In contrast, the Ethereum network relies on a decentralized workforce of “verifiers.” These are independent operators that validate and complete transactions.
However, they are not legally required to provide services to the financial system. Therefore, they are motivated by profit.
Validators incur real costs in terms of hardware, internet connectivity, and cybersecurity. However, their revenues are primarily denominated in ETH.
The paper notes that even if staking yields are stable in token terms, a “significant and sustained” decline in the dollar price of ETH could wipe out the real-world value of the proceeds.
If the revenue generated from validating transactions is less than the cost of operating the equipment, a rational business will go out of business.
The paper describes a potential “downward price spiral with persistent negative expectations” in which stakeholders rush to sell their holdings to avoid further losses.
Selling staked ETH requires “de-staking,” which effectively deactivates the validator. The report warns that in extreme restriction scenarios, “no validators means the network will fail.”
In such a situation, the payment layer becomes effectively non-functional, allowing users to submit transactions that will not be processed. Therefore, assets residing on-chain become “immovable” regardless of off-chain creditworthiness.
When your security budget reaches its limit
However, this threat extends beyond a simple processing outage. The paper argues that price collapse significantly reduces the cost for a malicious attacker to take over a network.
This vulnerability is framed by the concept of an “economic security budget,” defined as the minimum investment required to gain enough equity on a network to mount a sustained attack.
Ethereum allows attackers to manipulate the consensus mechanism by controlling over 50% of the active verification power. This situation allows for double spending and censorship of certain transactions.
The paper estimates that as of September 2025, Ethereum’s economic security budget is approximately 17 million ETH, or approximately $71 billion. Under normal market conditions, this high cost makes an attack “very unlikely”, the authors say.
However, security budgets are not static. It fluctuates depending on the market price of the token. When the price of ETH collapses, the dollar cost of disrupting the network also falls.
At the same time, as honest validators exit the market to cut their losses, the total pool of active stakes shrinks, further lowering the threshold for attackers to gain majority control.
This paper outlines the perverse and inverse relationship. As the value of a network’s native token approaches zero, the cost of attacking the infrastructure drops sharply, but the presence of other valuable assets may increase the incentive to attack the infrastructure.
The “safe” asset trap
This dynamic poses particular risks to the proliferation of “real world” assets (RWA) and stablecoins on the Ethereum network.
As of late 2025, Ethereum hosts more than 1.7 million assets with a total capitalization of more than $800 billion. This figure includes the combined market capitalization of the two largest dollar-backed stablecoins, approximately $140 billion.
In a scenario where ETH loses almost all of its value, the token itself would be of little interest to a sophisticated attacker.
However, the infrastructure will still hold billions of dollars of tokenized Treasury bills, corporate bonds, and fiat-backed stablecoins.
The report claims that these assets will be the primary targets. If an attacker gains control of a weakened chain, they could theoretically double-spend these tokens by sending them to an exchange to sell for fiat currency, while also sending them to another wallet on the chain.
This has a direct impact on the traditional financial system.
If issuers, broker-dealers, or funds have a legal obligation to redeem these tokenized assets at face value, but on-chain ownership records are compromised or manipulated, financial stress shifts from the crypto market to real-world balance sheets.
With this in mind, the newspaper warns that the damage is not limited to speculative crypto traders, “especially if the issuer has a legal obligation to refund at face value.”
There are no emergency exits
In traditional financial crises, panic often causes a “flight to safety”, with participants moving their funds from distress to stable locations. However, such a transition may not be possible in the event of blockchain infrastructure collapse.
For investors holding assets tokenized on the failed Ethereum network, a flight to safety could mean moving those assets to another blockchain. However, this poses a major obstacle to this “infrastructure switch.”
First, cross-chain bridges, the protocols used to move assets between blockchains, are notoriously vulnerable to hacking and may not scale well enough to handle mass outflows in times of panic.
These bridges could be exposed to attacks, and further uncertainty could lead to assets being “speculated” and “weak stablecoins” being unpegged.
Second, the decentralized nature of the ecosystem makes coordination difficult. Unlike centralized stock exchanges that can halt trading to quell panic, Ethereum is a global system with conflicting incentives.
Third, a significant portion of your assets may be locked up in DeFi protocols.
According to data from DeFiLlama, approximately $85 billion is locked in DeFi contracts at the time of writing, with many of these protocols acting as automated asset managers with governance processes that cannot immediately respond to failures in the settlement layer.
Additionally, the paper emphasizes that there is no “lender of last resort” in the cryptocurrency ecosystem.
Ethereum has built-in mechanisms to slow validator exit rates and limit processing to approximately 3,600 exits per day, but these are technical throttles, not economic backstops.
The author also rejected the idea that deep-pocketed entities like exchanges could stabilize collapsing ETH prices through “bulk purchases,” saying it was “very unlikely to work” in a true crisis of confidence, where the market could attack the rescue fund itself.
regulatory dilemma
The Bank of Italy’s paper ultimately positions this contagion risk as a pressing policy issue: Should permissionless blockchains be treated as critical financial market infrastructure?
The authors note that while some companies prefer permissioned blockchains operated by authorized parties, the appeal of public chains remains strong due to their reach and interoperability.
The paper cites the BlackRock BUIDL Fund, a tokenized money market fund available on Ethereum and Solana, as a prime example of early-stage traditional financial activity on public rail.
However, the analysis suggests that this infrastructure import comes with unique risks in that “the health of the payment layer is tied to the market price of speculative tokens.”
The paper concludes that central banks “cannot be expected” to jack up the prices of privately issued native tokens just to ensure the security of payment infrastructure. Instead, it suggests that regulators may need to impose strict business continuity requirements on issuers of the underlying assets.
The most specific proposal in the document calls for issuers to maintain an off-chain ownership database and specify a pre-selected “contingency chain.” This would theoretically allow assets to be ported to a new network in the event of a failure of the underlying Ethereum layer.
The newspaper warns that without such safeguards, the financial system risks slipping into a sleepwalking scenario in which legitimate financial plumbing shuts down due to the collapse of speculative crypto assets.