Bank of Italy economist sends out warning on Ethereum's role in financial system. The study suggests that Ethereum's role in financial systems makes its token economics a concern for regulators, who may need to consider safeguards for its use in regulated finance.

A Bank of Italy research paper by economist Claudia Biancotti models extreme downside scenarios for ether (ETH) and warns that Ethereum’s growing role as financial settlement infrastructure makes its token economics a potential concern for regulators. The work argues that if ETH’s price were to collapse severely and persistently, market risk in the token could translate into operational and infrastructure risk for payments, stablecoins, and tokenized assets that rely on Ethereum. The paper, titled “What if Ether Goes to Zero? How Market Risk Becomes Infrastructure Risk in Crypto,” treats Ethereum not primarily as a speculative asset but as critical settlement “plumbing” for on‑chain financial activity. Because Ethereum’s security in a proof‑of‑stake system depends on validators who are compensated and collateralized in ETH, a deep and lasting price crash could make validating economically irrational for many operators, leading to a validator exodus, reduced total staked value, slower block production, weaker finality guarantees, and heightened vulnerability to attacks and double‑spend attempts. This, in turn, could disrupt settlement for major stablecoins (e.g., USDT, USDC) and tokenized securities on Ethereum, even if those instruments are fully backed off‑chain, highlighting how volatility in an “unbacked” base asset can jeopardize infrastructure used by regulated finance. From a policy perspective, the study frames a regulatory dilemma: either deem today’s public blockchains unsuitable for supervised institutions, or allow their use subject to safeguards such as business‑continuity plans, backup settlement options (including alternative chains or off‑chain registers), minimum economic security thresholds, and standards around validator concentration and governance. The analysis aligns with increasing scrutiny from European and international bodies, which have begun to view large public blockchains as potential components of the broader financial system, rather than isolated speculative markets.

✨ AI-generated background, compiled from web sources — not editorial content.

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