Bank of Italy economist sends out warning on Ethereum's role in financial system

Core Insights - A collapse in the price of ether (ETH) could severely impact the Ethereum ecosystem's functionality as a settlement infrastructure for financial activities [1] - The analysis shifts the perspective from market risk to infrastructure risk, indicating that Ethereum is now viewed as a critical layer for financial instruments rather than merely a speculative platform [4][7] Impact on Financial Systems - A significant drop in ETH value would disrupt applications that handle billions of dollars in transactions daily, affecting payment, settlement, and tokenized finance systems [2] - The proof-of-stake mechanism relies on validators paid in ETH; a loss in ether's value may lead some validators to shut down, reducing network security and slowing block production [2][3] Regulatory Considerations - Regulators face a challenging decision: either deem public blockchains unsuitable for regulated finance due to their reliance on volatile tokens or allow their use with necessary safeguards [6] - The European Central Bank and the International Monetary Fund have raised concerns about the systemic importance of large stablecoins, especially if their issuance is concentrated and linked to traditional finance [5]