A market crash of Ethereum could disrupt the blockchain's settlement mechanism and lock up assets worth over $800 billion. This conclusion was reached by economist Claudia Biancotti in a study for the Bank of Italy.
In the document titled "What if Ether Falls to Zero?", the author identified the close link between the native token's price and the infrastructure's functionality as the main vulnerability of decentralized networks.
Blockchains are managed by independent validators who are rewarded in cryptocurrency (in this case, ETH). If the token loses its value, the economic incentives to support the network will vanish, triggering a chain reaction that transforms market risk into infrastructure risk.
Validators will begin shutting down their equipment to avoid losses, leading to a slowdown and eventually a complete halt in transaction confirmations.
Stablecoin Traps and Cyber Attacks
The greatest danger lies for users of assets issued on top of the main blockchain. Even fully backed stablecoins (USDT, USDC) or tokenized securities would become worthless.
If the network stops, these assets will remain in wallets but cannot be transferred. The infrastructure they rely on will simply stop responding.
A decline in token value will not only demotivate validators but also reduce the network's "security budget." A 51% attack would become inexpensive. Malicious actors could easily take control of the distributed ledger to execute double spends or censor transactions.
Recommendations for Regulators
Biancotti proposed two solutions for regulators:
- Prohibit supervised financial organizations from using public blockchains.
- Require issuers of tokenized assets to develop disaster recovery plans.
As a protective measure, she suggested maintaining off-chain ownership registries. This would allow user balances to be restored in an alternative network if the main blockchain fails. Automated cross-chain bridges may be unsafe or overloaded during a crisis.
It is worth noting that Michael van de Poppe, founder of MN Trading, stated that the theory of Ethereum's "death," based on its prolonged decline against Bitcoin, is unfounded.