Bank of Italy: ETH Crash Could Freeze $800B in “Hidden Death Spiral”

The $800 Billion Contagion Vector

A new paper from the Bank of Italy warns that an Ethereum price collapse is no longer just a market event. It is an infrastructure failure capable of freezing over $800 billion in global assets. The report, authored by economist Claudia Biancotti, challenges the prevailing assumption that regulated assets like stablecoins and tokenized bonds are safe simply because they are “backed” off-chain.

The core thesis is brutal in its simplicity: Ethereum’s security is purchased with ETH. If the token’s value evaporates, the security firewall protecting $140 billion in dollar-backed stablecoins vanishes with it.

ETH traded at $3,126 (+1%) on Monday, seemingly ignoring the tail-risk scenario outlined in Rome.

The Mechanism: Rational Validator Exodus

The study identifies a “death spiral” mechanic unique to Proof-of-Stake systems. As of September 2025, Ethereum’s economic security budget stood at approximately $71 billion. This figure represents the cost to attack the network. But this barrier fluctuates in real-time with the asset price.

If staking revenue falls below operational costs, rational validators will shut down, creating a downward price spiral accompanied by persistent negative expectations.

The danger lies in the inverse relationship between incentive and cost. As honest validators unplug to save on server costs, the network’s active stake shrinks. Simultaneously, the cost to hijack the chain plummets. An attacker doesn’t need to overpower the current $71 billion stake; they only need to overpower the remaining validators after a capitulation event.

Why “Safe” Assets Aren’t Safe

The paper explicitly targets the false sense of security around Real World Assets (RWAs). While issuers like BlackRock or Circle hold collateral in traditional vaults, the transfer of those claims relies on the blockchain. In a 51% attack scenario, a malicious actor could double-spend these tokens, sending them to an exchange for exit liquidity while simultaneously moving them to a different wallet.

The result? A reconciliation nightmare that could freeze the $140 billion stablecoin market and billions in tokenized treasuries, bleeding the shock directly into traditional finance.

The Regulatory Pivot: Mandatory Contingency Chains

The Bank of Italy’s findings suggest a looming regulatory shift. The paper argues that central banks “cannot be expected” to prop up the price of speculative native tokens to preserve infrastructure security. Instead, the report recommends strict business continuity mandates for issuers using public chains:

• Off-chain Shadow Databases: Issuers must maintain real-time, centralized ledgers of ownership.
• Portability Protocols: Legal and technical frameworks to migrate assets to a “contingency chain” if the mainnet fails.

For RWA issuers, the message is clear: You cannot outsource settlement risk to a volatile asset without a backup plan.