A collapse in the Ethereum price could interrupt the blockchain’s ability to settle transactions and freeze more than $800 billion in assets, a Bank of Italy research paper warns.
The article, written by Claudia Biancotti of the central bank’s Directorate General of Information Technology, outlined a contagion scenario in which the collapse of ETH’s price degrades the blockchain’s security infrastructure to the point of failure.
Such a breakdown, the report said, would entrap and compromise tokenized stocks, bonds and stablecoins that major financial institutions are increasingly placing on public ledgers.
Essentially, the article challenges the assumption that regulated assets issued on public blockchains are insulated from the volatility of the underlying cryptocurrency.
According to the report, the reliability of the settlement layer in permissionless networks such as Ethereum is inextricably linked to the market value of an unbacked token.
The pitfall of the validator economy
The core argument of the article rests on the fundamental difference between traditional financial market infrastructure and permissionless blockchains.
In traditional finance, settlement systems are managed by regulated entities with formal supervision, capital requirements and backstops from central banks. These entities are paid in fiat currency to ensure that transactions are completed legally and technically.
The Ethereum network, on the other hand, relies on a decentralized workforce of “validators.” These are independent operators who verify and complete transactions.
However, they have no legal mandate to serve the financial system. So they are motivated by profit.
Validators incur real costs for hardware, internet connectivity and cybersecurity. Yet their revenues are mainly denominated in ETH.
The paper notes that even if staking returns remain stable in symbolic terms, a “substantial and sustained” decline in the dollar price of ETH could wipe out the real value of those returns.
If the revenue from validating transactions falls below the cost of using the equipment, rational operators will close their doors.
The article describes a potential “downward price spiral, accompanied by persistent negative expectations,” with stakers rushing to sell their holdings to avoid further losses.
Selling staked ETH requires ‘undoing’, which effectively deactivates a validator. The report warns that in a scenario with extreme limits, “no validators means the network stops working.”
Under these circumstances, the settlement layer would effectively cease to function, allowing users to submit transactions that are never processed. Thus, on-chain assets would become ‘real estate’ regardless of their off-chain creditworthiness.
When security budgets break
Meanwhile, this threat extends beyond a simple stop of processing. The article states that a price drop would drastically reduce the cost for malicious actors to hijack the network.
This vulnerability is framed by the concept of the ‘economic security budget’ – defined as the minimum investment required to acquire enough shares to mount a sustained attack on the network.
On Ethereum, controlling more than 50% of the active validation power allows an attacker to manipulate the consensus mechanism. This situation would allow double-spending and censorship of specific transactions.
The paper estimates that Ethereum’s economic security budget was about 17 million ETH, or about $71 billion, as of September 2025. Under normal market conditions, the author notes, these high costs make an attack “extremely unlikely.”
However, the safety budget is not static; it fluctuates with the market price of the token. If the price of ETH collapses, the dollar cost to corrupt the network falls with it.
At the same time, as honest validators leave the market to cut losses, the total pool of active stakes shrinks, further lowering the threshold for an attacker to gain majority control.
The paper outlines a perverse inverse relationship: as the value of the network’s native token approaches zero, the cost of attacking the infrastructure decreases, but the incentive to attack it may increase due to the presence of other valuable assets.
The trap for ‘safe’ assets
This dynamic poses a specific risk to the real-world assets (RWAs) and stablecoins that have proliferated on the Ethereum network.
At the end of 2025, Ethereum hosted more than 1.7 million assets with a total capitalization of more than $800 billion. This figure included approximately $140 billion in combined market capitalization for the two largest dollar-backed stablecoins.
In a scenario where ETH has lost almost all of its value, the token itself would be of little interest to a sophisticated attacker.
However, the infrastructure would still house billions of dollars of tokenized treasuries, corporate bonds, and fiat-backed stablecoins.
The report states that these assets would become the main targets. If an attacker gains control of the weakened chain, he could theoretically double these tokens by sending them to an exchange where they can be sold for fiat, while simultaneously sending them to another wallet on the chain.
This delivers the shock directly to the traditional financial system.
If issuers, broker-dealers or funds are legally required to redeem these tokenized assets at face value, but on-chain ownership data is compromised or manipulated, the financial stress is transferred from the crypto market to real-world balance sheets.
Taking this into consideration, the paper warns that the damage would not be limited to speculative crypto traders, “especially if issuers were legally obliged to refund them at face value.”
No emergency exit
In conventional financial crises, panic often leads to a ‘flight to safety’, with participants shifting capital from distressed to stable locations. However, such a migration may be impossible during a blockchain infrastructure collapse.
For an investor holding a tokenized asset on a failing Ethereum network, a flight to safety could mean moving that asset to another blockchain. Yet this poses significant obstacles to this ‘infrastructure transition’.
First, cross-chain bridges, protocols used to move assets between blockchains, are notoriously vulnerable to hacks and may not be able to withstand a mass exodus during panic.
These bridges could come under fire, and further increasing uncertainty could lead to asset “speculation,” potentially unleashing “weaker stablecoins.”
Second, the decentralized nature of the ecosystem makes coordination difficult. Unlike a centralized stock exchange that can halt trading to calm panic, Ethereum is a global system with conflicting incentives.
Third, a significant portion of assets may be tied up in DeFi protocols.
According to data from DeFiLlama, there is approximately $85 billion tied up in DeFi contracts at the time of writing, and many of these protocols act as automated asset managers with governance processes that cannot immediately respond to a failure of the settlement layer.
Furthermore, the article highlights the lack of a ‘lender of last resort’ in the crypto ecosystem.
While Ethereum has built-in mechanisms to slow the rate of exit from the validator – limiting processing to around 3,600 exits per day – these are technical limitations, not economic safety nets.
The author also dismissed the idea that deep-pocketed actors such as exchanges could stabilize a crashing ETH price through “mass buying,” calling it “very unlikely this would work” in a real crisis of confidence where the market could attack the bailout fund itself.
A regulatory dilemma
The Bank of Italy paper ultimately frames this contagion risk as an urgent policy question: should permissionless blockchains be treated as critical financial market infrastructure?
The author notes that while some companies prefer permissioned blockchains operated by authorized entities, 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 good example of early-stage traditional financial activity on public rails.
However, the analysis suggests that importing this infrastructure carries the unique risk that “the health of the settlement layer is tied to the market price of a speculative token.”
The article concludes that central banks “cannot be expected” to increase the price of privately issued tokens simply to keep settlement infrastructure safe. Instead, it suggests that regulators may need to impose strict business continuity requirements on issuers of collateralized assets.
The most concrete proposal in the document calls for issuers to maintain databases of off-chain ownership and designate a pre-selected “contingency chain.” This would theoretically allow for porting of assets to a new network if the underlying Ethereum layer fails.
Without such safeguards, the paper warns, the financial system risks sleepwalking into a scenario in which a crash of a speculative crypto asset stops the flow of legitimate financial resources.