Ethereum price collapse could jeopardize $800 billion in assets

In a scenario where ETH has lost nearly all its value, the token itself would be of little interest to a sophisticated attacker.

However, the infrastructure would still house billions of dollars in tokenized treasury bills, corporate bonds, and fiat-backed stablecoins.

The report argues these assets would become the primary targets. If an attacker gains control of the weakened chain, they could theoretically double-spend these tokens by sending them to an exchange to be sold for fiat while simultaneously sending them to a different wallet on-chain.

This brings the shock directly into the traditional financial system.

If issuers, broker-dealers, or funds are legally bound to redeem these tokenized assets at face value, but the on-chain ownership records are compromised or manipulated, the financial stress transfers from the crypto market to real-world balance sheets.

Considering this, the paper warns that the damage would not be confined to speculative crypto traders, “especially if issuers were legally bound to reimburse them at face value.”

No emergency exit

In conventional financial crises, panic often triggers a “flight to safety,” in which participants shift capital from distressed to stable venues. However, such a migration may be impossible during a collapse of blockchain infrastructure.

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, that presents significant obstacles to this “switch in infrastructure.”

First, cross-chain bridges, which are protocols used to move assets between blockchains, are notoriously vulnerable to hacks and may not scale to handle a mass exodus during a panic.

These bridges could come under attack, and further rising uncertainty could cause assets to be “speculated against,” potentially causing “weaker stablecoins” to de-peg.

Second, the ecosystems decentralized nature makes coordination difficult. Unlike a centralized stock exchange that can halt trading to cool a panic, Ethereum is a global system with conflicting incentives.

Third, a significant portion of assets may be trapped in DeFi protocols.

According to DeFiLlama data, about $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.

Furthermore, the paper highlights the lack of a “lender of last resort” in the crypto ecosystem.

While Ethereum has built-in mechanisms to slow the speed of validator exits — capping processing to about 3,600 exits per day — these are technical throttles, not economic backstops.

The author also dismissed the idea that deep-pocketed actors like exchanges could stabilize a crashing ETH price through “massive buys,” calling it “very unlikely to work” in a true crisis of confidence where the market might attack the rescue fund itself.

A regulatory dilemma

The Bank of Italy paper ultimately frames this contagion risk as a pressing policy question: Should permissionless blockchains be treated as critical financial market infrastructure？

The author notes that while some firms prefer permissioned blockchains run by authorized entities, the allure 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 early-stage traditional finance activity on public rails.

However, the analysis suggests that importing this infrastructure comes with 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 prop up the price of privately issued native tokens simply to keep the settlement infrastructure secure. Instead, it suggests that regulators may need to impose strict business continuity requirements on issuers of backed assets.

The most concrete proposal in the document calls for issuers to maintain off-chain databases of ownership and to designate a pre-selected “contingency chain.” This would theoretically allow porting assets to a new network if the underlying Ethereum layer fails.

Without such safeguards, the paper warns, the financial system risks sleepwalking into a scenario where a crash in a speculative crypto asset halts the plumbing of legitimate finance.