The Unbacked Security Budget
The market treats a potential Ethereum collapse as a financial loss event. The Bank of Italy (Banca d’Italia) argues it is actually an operational kill switch. in a new working paper released this week, economist Claudia Biancotti details a structural flaw in permissionless blockchains: their security relies entirely on the market value of an unbacked asset.
While Ether (ETH) held steady at $3,150 (-0.5%) during the European session, the paper, titled “What if Ether Goes to Zero?”, challenges the assumption that decentralized ledgers are resilient to price shocks. The core thesis is simple: Ethereum validators are mercenaries paid in ETH. If the currency becomes worthless, the payroll stops, and the network ceases to validate transactions, including those of fully-backed assets like tokenized bonds or stablecoins.
Permissionless blockchains are operated by decentralized sets of independent validators, usually compensated in unbacked crypto-assets. Should such tokens incur a substantial and persistent loss in market value, validators might cease operations. Transaction settlement could slow or stop.
The “Stablecoin Paradox”
This creates a paradox for the billions in tokenized real-world assets (RWA) and stablecoins currently settling on Ethereum. An asset might be fully backed by U.S. Treasuries off-chain, but its transferability is underwriting by the speculative value of ETH on-chain. Biancotti notes that this transforms “market risk” (volatile crypto prices) into “infrastructure risk” (the inability to move assets).
If ETH collapses, the “infrastructure availability” vanishes. This differs fundamentally from traditional finance (TradFi), where a stock market crash does not physically break the settlement pipes of the exchange.
Systemic Drift
The paper arrives as traditional institutions increasingly experiment with public chains for settlement. The Bank of Italy’s warning serves as a implicit check on this enthusiasm: until the “security budget” of a chain is decoupled from the volatility of its native token, regulated entities act as passengers on a plane fueled by casino chips.
