Bank of Italy tests Ethereum

In a new stress test, the Bank of Italy explored how an extreme market shock in Ethereum could propagate through the system and amplify ether infrastructure risk.

Bank of Italy models Ether-to-zero scenario

The Bank of Italy modeled what would happen to Ethereum’s security and settlement capacity if the price of Ether fell to zero, treating the network as critical financial infrastructure rather than just a speculative crypto asset. This approach marks a shift from viewing ETH only as an investment toward assessing its role in core financial plumbing.

In a research paper titled “What if Ether Goes to Zero? How Market Risk Becomes Infrastructure Risk in Crypto,” Bank of Italy economist Claudia Biancotti examined how an extreme price shock in Ether could affect Ethereum-based financial services that rely on the network for transaction processing and settlement. Moreover, Biancotti focused on the link between validators‘ economic incentives and the stability of the underlying blockchain used by stablecoins and other tokenized assets.

The paper models how validators, who are rewarded in ETH, might respond if the token’s price collapsed and their rewards lost value. That said, the analysis is theoretical and does not predict an actual price path for Ether, but rather tests system resilience under an extreme stress scenario.

Validator exit and network security under stress

In the modeled scenario, a portion of validators would rationally exit, Biancotti argues, which would reduce the total stake securing the network. As a result, block production would slow and Ethereum’s ability to withstand certain attacks and guarantee the timely, final settlement of transactions would weaken. However, the paper stresses that the extent of the deterioration would depend on how many participants stopped validating.

By analyzing validator economic incentives, the study shows how ETH price risk can migrate into operational vulnerabilities. If staking rewards, paid in ETH, no longer compensate for hardware, energy or opportunity costs, rational actors have fewer reasons to keep their capital locked in the protocol. Consequently, this could undermine the reliability of transaction ordering and finality.

This dynamic is central to understanding ether infrastructure risk, because Ethereum is not only a trading venue but also a settlement backbone for multiple crypto financial services. Moreover, the paper suggests that risks in the base token can cascade into higher layers of the ecosystem that depend on Ethereum for secure execution.

From market risk to infrastructure risk

Rather than treating Ether purely as a volatile investment, the study frames it as a core input into the settlement infrastructure used by a growing share of onchain financial activity. In this framing, ETH functions as both a collateral-like asset for validators and a fee token for transactions.

Biancotti argues that Ethereum is increasingly used as a settlement layer for financial instruments, so that shocks to the value of the native token could diminish the reliability of the underlying infrastructure. Moreover, as more traditional-style instruments migrate onchain, the consequences of any disruption widen beyond crypto-native trading.

This framing allows the Bank of Italy to trace how market risk in the base token could morph into operational and infrastructure risk for instruments built on top, from fiat-backed stablecoins to tokenized securities that depend on Ethereum for transaction ordering and finality. However, the paper notes that the severity of any disruption would vary with the degree of asset concentration on a single chain.

The paper emphasizes that, in such stress, disruptions would not be limited to speculative trading, but could spill over into payment and settlement use cases that regulators increasingly monitor. That said, it does not claim that such a collapse is likely, but uses the extreme case to map potential transmission channels.

ECB and IMF warnings on stablecoin spillovers

Other authorities, including the International Monetary Fund and the European Central Bank (ECB), have warned that big stablecoins could become systemically important and pose financial stability risks if they continue to rapidly expand and remain concentrated in a handful of issuers. Moreover, their integration with trading venues and payment services strengthens the links between crypto markets and traditional finance.

An ECB Financial Stability Review report published in November 2025 noted that stablecoins’ structural vulnerabilities and their links to traditional finance mean a severe shock could trigger runs, asset fire sales and deposit outflows, especially if adoption broadened beyond crypto trading. In that context, Ethereum-based stablecoin settlement could become a key channel for stress transmission.

These warnings align with the Bank of Italy’s stress-test framing, which shows how disruptions in Ether’s price could impair settlement for stablecoins that use Ethereum for issuance and redemption flows. However, the degree of contagion would also depend on how diversified those projects are across different chains and infrastructures.

Policy trade-offs for using public blockchains

The Bank of Italy concluded that regulators face a difficult trade-off over whether and how supervised intermediaries should be allowed to rely on public blockchains for financial services. As Ethereum and similar networks gain importance, supervisors must weigh innovation benefits against emerging infrastructure vulnerabilities.

The paper sketches two broad options for public blockchain regulation. One is to treat today’s public chains as unsuitable for use in regulated financial infrastructure because they depend on volatile native tokens. The other is to permit their use while imposing risk mitigation measures such as business-continuity plans, contingency chains and minimum standards for economic security and validators.

Moreover, the study implies that clearer standards around validator concentration, minimum staked value and governance processes could help reduce the chance that a severe ETH price collapse undermines settlement reliability. However, any regulatory framework would need to remain flexible as technology, market structure and participant behavior evolve.

In summary, the Bank of Italy’s analysis uses an Ether-to-zero stress scenario to illustrate how market shocks in a base token can turn into broader infrastructure and financial stability risks, reinforcing calls from European and international bodies for closer oversight of blockchain-based settlement systems.