Blockchain-based currencies can now buy almost anything, from digital art to a house. But those currencies are themselves volatile, and that volatility passes through to whatever trades on top of them. Ziwen Chen draws on the digital art market to show how this settlement-asset risk spreads — and why it now matters far beyond crypto.
The digital art market is a useful place to watch what happens when money itself is unstable. On curated platforms such as SuperRare, artworks are sold as non-fungible tokens (NFTs), blockchain records that certify who owns a unique digital item. They are bought not in dollars but in Ether (ETH): Ethereum is the network and Ether is the currency that runs on it. When that currency’s price moves, the value of everything priced in it moves too. And in early 2026 that link was on full display.
Between 1 and 6 February 2026, Ether lost roughly 22 per cent of its value, and the fallout in digital art was swift. Nifty Gateway, once a defining venue for the medium, said it would shut down; NFT Paris cancelled its 2026 conference; and floor prices on blue-chip collections sat 70 to 90 per cent below their peaks. A market that settles in a volatile currency, it turned out, is only ever as stable as that currency.
Yet within weeks the same on-chain money was moving toward the centre of mainstream finance. On 24 March the New York Stock Exchange signed an agreement with Securitize to design a tokenised stock platform settled in stablecoins. Six days earlier the Securities and Exchange Commission had approved Nasdaq’s own tokenisation pilot.
These two developments are connected, though not in the way the timing suggests. The institutions moving on-chain are not adopting these currencies in spite of February’s turmoil; they are choosing the same kind of on-chain money to settle on. February showed what happens when a market clears in an asset that can swing violently. March’s commitments will route far larger, regulated markets — equities, and the payment and credit systems behind them — through a close relative: stablecoins, designed to hold their value but not guaranteed to. The hazards differ — a volatile price versus a peg that can break — but the lesson is the same: the stability of a settlement layer can never be assumed. February’s crash is an early warning for the tokenised markets now being built.
Regulators have begun to say as much. On 20 April the Bank for International Settlements warned that the $320 billion stablecoin market poses material risks to financial stability. An earlier BIS report singled out the choice of settlement asset as a core risk in tokenised markets. My recent research examines how that risk behaves in one market where it is already fully exposed.
What the data show
I study SuperRare, a curated art-NFT marketplace where every work is unique, by looking at more than 21,000 sales between April 2021 and June 2023. To capture the stress state of the settlement asset, I build two measures of Ether risk: a seven-day reading of how volatile its price has recently been, and a statistical probability that it has entered a high-volatility regime. For each day I then ask a simple question: given the current state of Ether risk, what is the chance that the NFT market suffers a large drawdown over the following 30 days?
Two findings stand out
First, crash risk rises sharply with Ether’s risk state. The 30-day probability of a 30 per cent drawdown, measured in US dollars, climbs from about 10 per cent in the calmest quartile to nearly 39 per cent in the most turbulent. For 40 per cent drawdowns measured in Ether itself, the rates rise from 7.6 to 27.6 per cent. The signal predicts crashes, not average returns.
Second, the predictive power is itself state-dependent. It is weakest during the 2021 NFT boom — the year Beeple’s NFT collage fetched $69 million at Christie’s — when prices rose almost regardless of conditions. And it is strongest during the broad crypto sell-off of the first half of 2022, deepened in May by the collapse of the Terra-Luna stablecoin, when Ether fell hard. That fits a the liquidity spiral, a well-known idea in finance in which stress in a settlement asset can tip a downstream market into a crash when funding constraints bind. The turbulence of February 2026 looks like the same pattern again.
The mechanism is not simply that NFT prices fall when Ether does. Prices measured in Ether fall too, most steeply when Ether is under stress. The marginal NFT buyer is, almost by definition, someone with sizeable Ether holdings, so a shock to the settlement asset tends to compress their funding capacity and risk appetite at once. This channel is largely invisible where settlement is in a stable government currency, which is what makes the move on-chain consequential.
For people inside the art market, this is more unsettling than ordinary price risk. A collector holding a digital work is exposed twice over: once to the taste and liquidity of the art market and again to a currency that can shed a fifth of its value in a week. When it does, buyers retreat. With no central order book, prices rest on a handful of marginal bidders and once they step away liquidity vanishes, leaving even celebrated collections unsupported and fee-dependent platforms struggling to survive. Confidence ends up hostage to the monetary layer rather than to the art.
No longer just a crypto problem
None of this would matter much if it stayed confined to digital art. It will not. What is being built on this on-chain settlement layer is no longer marginal: stablecoins moved roughly $33 trillion in 2025, about twice Visa’s payment volume. Their reserves now rank among the largest holders of US Treasuries. Tokenised real-world assets on public blockchains have reached tens of billions of dollars. And BlackRock’s tokenised Treasury fund is now accepted as collateral on major exchanges.
The reach into household credit may matter most. In June 2025 America’s Federal Housing Finance Agency directed Fannie Mae and Freddie Mac — the enterprises that underpin the US mortgage market — to count crypto holdings as reserves in mortgage risk assessments, without converting them to dollars. In March 2026 Better Home & Finance and Coinbase launched the first crypto-backed mortgage accepted by Fannie Mae, letting borrowers pledge Bitcoin or the stablecoin USDC toward a down payment.
None of these arrangements is fragile in the way an art-NFT marketplace is. But each takes a settlement or collateral asset whose stability cannot be assumed — whether because its price swings, as Ether’s does, or because a peg can break under stress — and wires it into a regulated payment, credit or housing relationship. The choice of settlement asset is no longer neutral plumbing; it shapes the fragility of every market built on top of it. As more of finance moves on-chain, the question is not only whether the underlying assets are well designed, but whether the money beneath them is stable enough to hold up when it matters most.
This article gives the views of the author, not the position of LSE Business Review or the London School of Economics. You are agreeing with our comment policy when you leave a comment.
Image credit: Diego Thomazini provided by Shutterstock.