The collapse in Ether's value threatens Ethereum's financial role

The collapse of Ethereum’s price could cause serious damage to the network’s ability to function as a settlement infrastructure for the global financial system. This conclusion was reached by a group of economists from the Bank of Italy in a new analytical study. Today, with ETH valued at $2.31K, these risks are drawing close regulatory scrutiny worldwide.

The study emphasizes that Ethereum’s ongoing transformation from a speculative platform into a financial operations infrastructure is changing the nature of the risks faced by the ecosystem. It is no longer just a matter of crypto market volatility — it is a matter of financial system stability.

How ETH Collapse Will Disrupt Network Security

Ethereum’s consensus mechanism is based on Proof-of-Stake, where validators ensure network security in exchange for rewards in ETH tokens. A price collapse creates a critical vulnerability in this model.

Economist Claudia Biancotti from the Bank of Italy points out the following issue: if the value of Ether drops significantly, the economic incentives for validators will disappear. Rational network participants will start to disconnect, leading to a reduction in the amount of locked capital that guarantees security. Such a scenario creates a cascade effect — block production slows down, transaction finality decreases, and vulnerability to attacks increases.

The most dangerous situation is when users are most dependent on the network precisely at its technical vulnerability point. According to Biancotti, this transforms the risk from a market category into an infrastructure category — a qualitatively new level of threat.

Financial Applications on the Front Line of Risk

Today, Ethereum serves as the foundation for many financial instruments: stablecoins, tokenized securities, lending protocols. An ETH collapse poses a direct threat to all these applications.

Payment, settlement, and digital finance systems relying on the Ethereum blockchain for transaction processing and ownership verification will come under pressure. We are talking about billions of dollars in daily operations. If the network loses technical reliability, it could trigger widespread failures in critically important financial processes.

Voice of Global Financial Institutions

The conclusions of Italian economists align with warnings from other authoritative bodies. The European Central Bank and the International Monetary Fund have previously pointed out the systemic risk posed by large stablecoins, especially if their issuance becomes concentrated and ties to traditional financial systems strengthen.

Both institutions emphasize that a serious economic shock could trigger panic withdrawals and forced asset sales. An Ethereum price collapse is exactly such a potential trigger capable of triggering a financial crisis through blockchain-integrated systems.

Two Paths for Regulators

Biancotti did not propose specific policy solutions but highlighted a fundamental choice facing regulators. The first path is to recognize public blockchains as incompatible with regulated finance due to dependence on volatile native tokens. This would require restricting the use of Ethereum in financial infrastructure.

An alternative approach is to allow its use under the condition of implementing enhanced protective measures: crisis action plans, backup settlement channels, minimum standards of economic security. This path requires a more flexible and comprehensive regulatory approach.

Fundamental Change in Perception of Ethereum

The main conclusion of the Bank of Italy’s study signals a shift in the tone of cryptocurrency discussions. Ethereum tokenomics is no longer viewed as an internal issue of the crypto industry. It has evolved into a factor that could have potential consequences for the stability of the financial infrastructure as a whole.

An ETH collapse is not just an investment risk. It is a systemic risk affecting all participants in the global financial system who interact directly or indirectly with blockchain applications. This rethinking changes the nature of regulatory debates and sets the agenda for years to come.