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The Bank of Italy has conducted a modeling exercise to determine the potential effects on Ethereum’s security and settlement capacity should the price of its native token, Ether, drop to zero. In this analysis, the central bank approached the Ethereum network not merely as a platform for speculative assets, but as critical financial infrastructure. The research, led by Bank of Italy economist Claudia Biancotti, specifically investigated how such an extreme price shock would impact the financial services currently operating on the blockchain.
The core of the study centers on the relationship between the economic incentives provided to network validators and the overall stability of the underlying blockchain. Because validators receive their rewards in Ether, a total collapse in the token’s market value would fundamentally alter the rational behavior of these participants. Biancotti argues that if rewards lost their value, a significant portion of validators would likely choose to exit the network. This mass departure would have immediate technical consequences, including a reduction in the total stake securing the blockchain and a slowing of block production. Consequently, Ethereum’s ability to defend against specific attacks and its capacity to guarantee the timely and final settlement of transactions would be severely weakened.
Context
The Bank of Italy’s research highlights a growing trend where Ethereum is increasingly utilized as a settlement layer for various financial instruments. This shift in usage means that the network’s technical reliability is no longer just a concern for crypto traders, but a matter of infrastructure integrity. The study effectively traces the path through which market risk, typically associated with token price volatility, can transform into operational and infrastructure risk for the entire ecosystem built on top of the base layer.
Under this framework, shocks to the value of a native token like Ether are seen as having the potential to diminish the reliability of the underlying settlement systems. The analysis suggests that disruptions resulting from a price collapse would not be confined to speculative trading activities. Instead, the negative effects would likely spill over into critical payment and settlement use cases, which are areas of increasing focus for global financial regulators. This transition from market volatility to systemic operational failure represents a significant shift in how central banks evaluate the risks associated with public blockchain technology. It suggests that the integrity of financial instruments is tied to the price of the token that pays for the network’s security.
Impact
The concerns raised by the Bank of Italy are echoed by other major international financial institutions. Both the International Monetary Fund (IMF) and the European Central Bank (ECB) have previously issued warnings regarding the potential for large stablecoins to become systemically important to the broader financial system. An ECB report from November 2025 specifically noted that the structural vulnerabilities inherent in stablecoins, combined with their existing links to traditional finance, mean that a severe market shock could trigger a series of damaging events.
These events could include the following:
- The occurrence of runs where users attempt to exit stablecoin positions simultaneously.
- Asset fire sales, defined as the rapid selling of reserve assets at depressed prices to meet redemptions.
- Significant outflows from traditional bank deposits.
Such risks are expected to become more pronounced if the adoption of these digital assets continues to expand beyond the realm of crypto trading and into broader financial applications. The Bank of Italy’s findings suggest that the stability of these higher-level assets is inextricably linked to the economic security of the base-layer blockchain. If the native token loses its value, the entire infrastructure supporting these systemically important stablecoins could be compromised, potentially leading to financial instability.
Outlook
The Bank of Italy concludes that regulators are now facing a difficult trade-off regarding the role of public blockchains in regulated finance. The central question is whether, and under what specific conditions, supervised financial intermediaries should be permitted to rely on public infrastructure for their services. The research sketches two primary paths for future regulatory frameworks. One option involves treating current public chains as inherently unsuitable for use in regulated financial infrastructure. This stance stems from the observation that these networks depend on volatile native tokens to maintain their operational integrity.
Alternatively, regulators could choose to permit the use of these public networks while simultaneously imposing rigorous risk mitigation measures. These requirements would likely include several critical components to ensure stability:
- The development of comprehensive business-continuity plans for intermediaries.
- The establishment of contingency chains to serve as backups in the event of failure.
- The implementation of mandatory minimum standards for economic security and the behavior of validators.
The implementation of such standards would aim to address the vulnerability of public blockchains to price shocks in their native assets. As financial institutions continue to explore tokenization and on-chain settlement, the resolution of this regulatory trade-off will be a determining factor in whether public blockchains are integrated into the global financial architecture.
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