Ethereum’s hidden ‘death spiral’ mechanic could freeze $800 billion in assets regardless of their safety rating

A recent research paper from the Bank of Italy highlights a potential 'death spiral' scenario for Ethereum. The paper argues that a significant and sustained drop in ETH's price could undermine the economic incentives for validators, leading them to shut down operations and compromise the blockchain's security. This could freeze over $800 billion in assets, including tokenized stocks, bonds, and stablecoins, regardless of their perceived safety. The core issue is that Ethereum's settlement layer relies on a token whose price volatility directly impacts the network's ability to function. A falling price increases the cost of attacks while decreasing the revenue for validators, creating a dangerous feedback loop. The report also points out the lack of a 'lender of last resort' and the difficulties in migrating assets to other blockchains during a crisis. The paper suggests regulators should consider imposing strict business continuity requirements on issuers of assets on Ethereum, such as maintaining off-chain databases and designating contingency chains, to mitigate this systemic risk.

(Source：CryptoSlate)