Bank of Italy models scenario where ether price collapse hits Ethereum settlement

The paper, titled “What if Ether Goes to Zero? How Market Risk Becomes Infrastructure Risk in Crypto,” lays out a simple mechanism: permissionless blockchains compensate independent validators in native tokens; if those tokens lose substantial value for long enough, the incentive to keep validating can break down, threatening throughput and increasing cyber-attack exposure for all on-chain assets.

Authored by Bank of Italy’s Claudia Biancotti, the analysis focuses on Ethereum as the long-standing multi-asset network where smart contracts host a large share of token issuance, DeFi activity and stablecoin float. It frames Ethereum as shared “settlement infrastructure” whose availability and security are indirectly tied to ETH price via validator rewards and operating costs.

At the time of writing used in the study (data current as of 23 September 2025), the paper notes that Ethereum hosted over 1.7 million distinct assets with total capitalization above $800 billion, concentrated in the top-20, including ETH itself (about $490 billion) and two large dollar stablecoins (~$140 billion combined). Network operation relied on roughly 10,000 nodes spread across 30+ countries, led by the United States and Germany, while the global validator set exceeded one million, with industrial operators (e.g., centralized exchanges) running very large fleets.

The core risk channel, the paper argues, is economic: validator participation is voluntary and reward-driven; if persistent token price weakness lowers real revenues beneath hardware, bandwidth, maintenance and organizational costs, some operators could exit. Even before outright exit, thinner margins can degrade security – by reducing diversity of clients and operators, shifting power toward larger actors, or increasing the attractiveness of MEV-driven strategies that concentrate block-building. In an extreme case, “transaction settlement could slow or stop,” and defenses against manipulation would weaken, elevating double-spend and re-org risks for all assets on the chain, including fully collateralized stablecoins and tokenized securities.

Beyond the high-level warning, the report provides concrete system-scale context that matters for risk assessments and contingency planning. It distinguishes between nodes (physical servers maintaining the ledger) and validators (software agents that can be many-per-node), noting that large, identified industry pools frequently run clusters and that a single operator can manage hundreds of thousands of validators – an operational reality that both boosts resilience and concentrates influence.

The study situates Ethereum within the broader PB (permissionless blockchain) landscape. While designs differ across networks like Solana, Tron and BNB Chain, the underlying incentive logic is similar – validators are paid in unbacked native tokens – so the price-to-infrastructure feedback loop generalizes beyond ETH. By contrast, a minority of networks such as XRP Ledger and Stellar do not reward validators in native tokens; their volumes are comparatively small, and participation is driven by direct commercial interest or non-economic motives, placing them outside the paper’s main risk model.

Crucially, the Bank of Italy paper places this discussion in the context of traditional finance onboarding to public chains, where cost and speed advantages are enticing. The implication is not that public chains are unusable, but that financial institutions and policymakers should treat native-token price stress as a potential infrastructure event, not merely a market drawdown for speculative holders. That framing aligns with ongoing supervisory work on PB governance, technology and legal risk, which the paper cites, but adds a specific, modeled link from token volatility to settlement integrity.

Ethereum’s asset stack is broad – ranging from LSTs and restaking wrappers to stablecoins and tokenized RWAs – so an ETH-price-driven validator shock could propagate quickly to non-ETH positions that institutions view as lower risk. The paper’s inventory of scale – assets, capitalization, validator counts, geographic dispersion – underscores both the systemic reach of Ethereum’s settlement layer and the concentration vectors (large validator operators, MEV supply chains) that could shape outcomes in stress.

Takeaways for risk owners: for exchanges, custodians, stablecoin issuers, and tokenization platforms considering or already using Ethereum settlement, the study suggests incorporating ETH price-conditional scenarios into operational risk playbooks; monitoring validator participation, client diversity and MEV market structure; and maintaining multi-venue contingency (e.g., alternative rails, delayed settlement modes) for periods when validator economics might become fragile. These are practical inferences from the paper’s central mechanism that “on PBs, market risk for unbacked assets can morph into settlement and cyber risk” for the broader asset set riding the chain.