Bank of Italy research analyzes the risks of ETH volatility to financial infrastructure

A recent analysis by the Bank of Italy highlights a fundamental concern about the future of Ethereum as a financial settlement platform: what would happen if ether experienced a price collapse? The answer, as economist Claudia Biancotti demonstrates, could jeopardize not only investors but an entire layer of financial infrastructure that has become dependent on the Ethereum blockchain.

The study goes beyond typical speculation about cryptocurrency volatility. It repositions the issue as an infrastructure risk—not simply a market risk. This shift in perspective reflects how global monetary authorities are reevaluating public blockchains: no longer as isolated speculative markets but as critical layers of modern financial systems.

Why a drop in ether would threaten Ethereum as a settlement hub

Ethereum is not just a token platform. Currently, it processes transactions worth billions of dollars in stablecoins, tokenized securities, and on-chain lending services. All depend on the blockchain to order transactions and confirm asset ownership. A radical devaluation of ETH—the currency that remunerates validators responsible for network security—would create a systemic problem.

As the price of ether drops significantly, the underlying economy that incentivizes validators to remain operational would collapse. Many, acting rationally, would shut down their operations. The immediate result would be: less staking securing the network, slower block production, and weakened resistance of Ethereum against certain types of attacks.

Validators, security, and the risk of cascading collapse

The Ethereum blockchain, which has operated under the proof-of-stake mechanism since its migration was completed, depends entirely on this incentive dynamic. Validators are rewarded in ETH for maintaining system security. When the token loses value, the real compensation for participation diminishes dramatically, making operation financially irrational for many.

Biancotti modeled this scenario precisely: a severe drop in ETH value would not only reduce the number of active validators but would also degrade exactly the attributes that Ethereum offers as a reliable infrastructure. Transaction finalization could deteriorate precisely when users depend most on the network—creating a vicious cycle where distrust fuels abandonment, which in turn fuels more distrust.

The paradigm shift: from speculative risk to systemic risk

What makes this study particularly significant is its conceptual reorientation. A few years ago, discussions about Ethereum were predominantly about speculative opportunities. Today, the Bank of Italy—along with the European Central Bank and the International Monetary Fund—treats the issue as a matter of systemic financial stability.

These institutions recognize that stablecoins and tokenized instruments could become systemically important, especially as issuance concentrates and links with the traditional financial system deepen. A severe shock to ether could trigger stablecoin runs, forced collateral asset sales, and contagion to interconnected financial institutions.

The regulatory dilemma: safeguards versus restriction

Biancotti does not prescribe solutions but outlines the dilemma regulators face. There are basically two options, each with considerable trade-offs:

First option: Consider public blockchains as infrastructure unsuitable for regulated finance, given the dependence on volatile native tokens. This approach would be restrictive but would eliminate systemic risk.

Second option: Allow the use of Ethereum for regulated finance but require robust safeguards—contingency plans, alternative settlement arrangements, minimum standards for economic security. This approach would preserve innovation but require intensive oversight.

The Bank of Italy’s report signals that the token economy is no longer an internal concern of the crypto universe but a factor with potential implications for the stability of international financial infrastructure. The decision on which path to follow—restriction or active supervision—will likely shape the next decade of blockchain development in regulated financial contexts.