Central Bank Simulates Ethereum Zeroing Out: Why Are Validators Rationally Leaving

The latest research paper released by the Bank of Italy proposes an extreme hypothesis: what happens if the price of Ethereum drops to zero? The answer might be more severe than you think. This is not alarmism but a conclusion drawn from rigorous academic analysis by central bank economists, reflecting a new understanding of the risks associated with crypto infrastructure by traditional financial institutions.

Why Central Banks Focus on Extreme Risks

In a study titled “What Happens if Ethereum Price Drops to Zero? How Cryptocurrency Market Risks Evolve into Infrastructure Risks,” Italian central bank economist Claudia Biancotti simulated an extreme shock scenario for Ethereum’s native token. The starting point of this research is clear: the central bank is not speculating on coin prices but assessing how market risks could evolve into financial stability risks.

This reflects an important regulatory shift. In recent years, central banks mainly focused on the impact of cryptocurrencies on monetary policy. Now, they are beginning to seriously consider a deeper issue: if large-scale adoption of crypto networks faces extreme risks, could it threaten the stability of financial infrastructure?

The “Rational Exit” Logic of Validators

The core finding of the study touches on a key weakness of Ethereum’s PoS mechanism. Claudia Biancotti believes that in an extreme scenario where Ethereum’s price crashes, some validators will make rational decisions: exit the network.

This logic is straightforward:

• Validators stake ETH to earn block rewards and transaction fees
• If ETH price approaches zero, rewards also approach zero
• Running nodes requires hardware, electricity, and technical costs
• Costs outweigh rewards, making exit the rational choice

This “rational exit” may seem like individual behavior, but at the network level, it can trigger chain reactions:

Validators decrease → active nodes decline → block production slows → network congestion worsens → transaction finalization times lengthen → the network’s attack resistance diminishes

From Market Risk to Infrastructure Risk

The value of this research lies in revealing a rarely addressed issue in traditional finance: how crypto market risks can evolve into infrastructure risks.

Ethereum’s position in the crypto ecosystem is currently unshakable. According to the latest data, ETH’s market cap reaches $37.502 billion, accounting for 12.14% of the entire crypto market. 24-hour trading volume is $1.735 billion, with over 120 million tokens in circulation. This scale is large enough to warrant serious attention from central banks.

More importantly, Ethereum’s use cases are expanding. Increasingly, DeFi protocols, stablecoins, and cross-chain bridges are built on Ethereum. If validators exit en masse, leading to decreased network security, it would not only impact ETH holders but could also affect the entire ecosystem built on it.

What Does This Research Mean?

From a central bank perspective, this study is a risk assessment report. It tells regulators: cryptocurrencies are not just investment assets; their network security also relates to financial stability.

From Ethereum’s perspective, this is a warning. Although ETH prices are currently stable around $3,100, the study reminds us that the fragility of validator economics is a long-term issue to watch. If future efforts are made to enhance the network’s resilience against extreme risks, it may require rethinking incentive mechanism design.

Summary

This research by the Bank of Italy marks a shift: from focusing on coin price volatility to paying attention to the stability of network infrastructure. Rational exit by validators, while seemingly basic economic logic, can lead to serious systemic consequences in crypto networks. It reminds us that when assessing crypto asset risks, we should not only look at market data but also understand the underlying network economics. The central bank’s involvement also indicates that future crypto regulation may focus more on infrastructure security rather than just investor protection.