A collapse in the price of Ethereum could break the blockchain’s ability to settle transactions and freeze more than $800 billion in assets, a Bank of Italy research paper warns.
The paper, authored by Claudia Biancotti of the central bank’s Directorate General of Information Technology, describes a contagion scenario in which the collapse of ETH prices degrades the blockchain security infrastructure to the point of failure.
According to the report, such a breakup would trap and compromise the tokenized stocks, bonds and stablecoins that large financial institutions are increasingly placing on public ledgers.
Essentially, the paper 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 like Ethereum is inextricably linked to the market value of a non-collateralized token.
The economic trap of the validator
The main argument of the paper is based on the fundamental difference between traditional financial market infrastructure and permissionless blockchains.
In traditional finance, settlement systems are managed by regulated entities with formal oversight, capital requirements and central bank guarantees. These entities are paid in fiat currency to ensure that transactions are completed legally and technically.
In contrast, the Ethereum network relies on a decentralized workforce of “validators.” These are independent operators who verify and finalize transactions.
However, they are not legally mandated to serve the financial system. They are therefore motivated by profit.
Validators incur real costs for hardware, internet connectivity and cybersecurity. Yet their revenues are primarily denominated in ETH.
The document notes that even if staking returns remain stable in token terms, a “substantial and persistent” decline in the dollar price of ETH could erase the real value of these profits.
If the revenue generated by validating transactions falls below the cost of running the equipment, rational operators will go out of business.
The paper describes a potential “downward price spiral accompanied by persistent negative expectations,” in which investors rush to sell their holdings to avoid further losses.
Selling staked ETH requires unstaking, which effectively disables a validator. The report warns that in an extreme scenario, “the absence of validators means that the network no longer works.”
Under these conditions, the settlement layer would effectively stop working, leaving users able to submit transactions that will never be processed. Thus, assets residing on-chain would become “real estate”, regardless of their off-chain creditworthiness.
When security budgets collapse
However, this threat goes beyond simply stopping treatment. The paper argues that a price collapse would significantly reduce the cost of network hijacking by malicious actors.
This vulnerability is framed by the concept of an “economic security budget,” defined as the minimum investment required to acquire sufficient stake to launch 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.
As of September 2025, the paper estimates that Ethereum’s economic security budget was around 17 million ETH, or around $71 billion. Under normal market conditions, the author notes, this high cost makes an attack “extremely unlikely”.
However, the security budget is not static; it fluctuates with the market price of the token. If the price of ETH collapses, the dollar cost of network corruption will decrease at the same time.
Simultaneously, as honest validators exit the market to reduce losses, the total pool of active stakes decreases, further lowering the threshold for an attacker to gain majority control.
The paper describes a perverse inverse relationship: as the value of the network’s native token approaches zero, the cost of attacking the infrastructure falls, but the incentive to attack it may increase due to the presence of other valuable assets.
The trap of “safe” assets
This dynamic poses a specific risk for “real world” assets (RWA) and stablecoins that have proliferated on the Ethereum network.
At the end of 2025, Ethereum hosted over 1.7 million assets with a total capitalization exceeding $800 billion. This figure included approximately $140 billion in combined market capitalization for the two largest dollar-backed stablecoins.
In a scenario where ETH lost almost all of its value, the token itself would be of little use to a sophisticated attacker.
However, the infrastructure would still house billions of dollars in tokenized Treasuries, corporate bonds, and stablecoins backed by fiat currencies.
The report claims that these assets would become the main targets. If an attacker takes control of the weakened chain, they could theoretically double-dip these tokens by sending them to an exchange to sell for fiat while simultaneously sending them to another wallet on-chain.
This brings the shock directly into the traditional financial system.
If issuers, brokers, or funds are legally required to repurchase these tokenized assets at face value, but on-chain ownership records are compromised or manipulated, financial stress is transferred from the crypto market to real-world balance sheets.
Given this, the document warns that damages would not be limited to speculative crypto traders, “especially if issuers were legally required to repay them at face value.”
No emergency exit
In typical financial crises, panic often triggers a “flight to safety,” in which participants move their capital from distressed to stable locations. However, such a migration might prove impossible if the blockchain infrastructure collapses.
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 presents significant barriers to this “infrastructure change.”
First, cross-chain bridges, which are protocols used to move assets between blockchains, are notoriously vulnerable to hacks and may not be suitable to handle a mass exodus in the event of a panic.
These bridges could come under attack, and growing uncertainty could lead to “asset speculation,” which could potentially lead to an unpegging of “weaker stablecoins.”
Second, the decentralized nature of the ecosystem makes coordination difficult. Unlike a centralized exchange that can halt trading to calm panic, Ethereum is a global system with conflicting incentives.
Third, a significant portion of assets may be trapped in DeFi protocols.
According to data from DeFiLlama, approximately $85 billion is locked in DeFi contracts at the time of writing, and many of these protocols act as automated asset managers with governance processes that cannot respond instantly to a settlement layer failure.
Additionally, the document highlights the lack of a “lender of last resort” in the crypto ecosystem.
Although Ethereum has built-in mechanisms to slow down validator output speed – capping processing at around 3,600 outputs per day – these are technical brakes, not economic safety nets.
The author also dismissed the idea that deep-pocketed players like exchanges could stabilize the falling ETH price through “massive purchases,” calling it “highly unlikely to 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 presents this risk of contagion as an urgent policy question: should permissionless blockchains be treated as critical financial market infrastructure?
The author notes that while some companies prefer blockchains that are permissioned and managed 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 prime example of an early-stage traditional financial activity on public tracks.
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 paper concludes that “central banks cannot be expected to support the price of privately issued native tokens simply to ensure the security of the settlement infrastructure. Rather, it suggests that regulators may need to impose strict business continuity requirements on issuers of collateralized assets.
The document’s most concrete proposal calls for issuers to maintain off-chain ownership databases and designate 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.
Without such guarantees, the newspaper warns, the financial system risks falling into a scenario in which a crash of a speculative crypto asset interrupts the functioning of legitimate finance.
