Türkiye’s regulatory turnaround—will it trigger a Web3 boom?

Source: TaxDAO

Permission for a cryptocurrency to operate in any given jurisdiction may be approved or revoked based on the views of the government or country leaders. The Turkish government recently announced a slew of new cryptocurrency regulatory measures, but the road to getting there has been rocky. The Turkish government has resisted formal digital asset regulation for years, with President Recep Erdogan declaring in 2021 that the country was “at war with cryptocurrencies” and banning their use for payments.

At the time, the government’s view seemed to be that cryptocurrencies posed a competitive threat to the future development of the digital lira. However, many Turkish citizens think otherwise. A KuCoin survey in September 2023 found that 52% of Turks have adopted cryptocurrencies, while Chainalysis’ 2023 Cryptocurrency Geography report revealed that Turkey ranks fourth globally in terms of cryptocurrency trading volume, behind only USA, UK and India. In both cases, interest in cryptocurrencies is attributed to Turkey’s high inflation (over 60% in 2023) and the weakness of the lira. In September 2023, the Turkish Lira became the largest cryptocurrency trading pair on Binance, accounting for 75% of all fiat currency trading volume at the beginning of the month.

Why supervision? Why now?

Even given the high level of interest in cryptocurrencies, it is unlikely that the government’s U-turn on regulation is purely based on citizens’ desire to engage with digital assets. One possible explanation is that Erdogan, who defeated political rival Kemal Kilicdaroglu in last May's presidential election, may be exercising his legislative powers. Contrary to Erdogan's anti-encryption stance, Kilicdaroglu was promoted as a pro-Web3 candidate and made election promises that included expanding the Web3 platform. The new rules could therefore be a way for Erdogan to demonstrate his ability to control growing interest in digital assets.

But there may well be more pragmatic factors at play. Announcing the new regulations, Finance Minister Mehmet Şimşek mentioned that the country aims to be removed from the Financial Action Task Force "grey list", which highlights failure to take appropriate measures to combat money laundering and Countries that finance terrorism. The encryption legislation is the final check needed for Turkey to be delisted after meeting 39 out of 40 requirements. The government's new rules focus mainly on licensing and taxation, and implement measures such as minimum capital requirements similar to the EU's MiCA regulations.

Surge of interest

There was a time in the digital asset space when the prospect of regulation would put operators out of business. Now, however, the opposite seems to be happening, which can only be seen as a sign of growing maturity. Many believe that the implementation of MiCA in the EU has played a positive role in the adoption and acceptance of digital assets, and now the same situation appears to be happening in Turkey.

In the weeks following the regulatory announcement, two major banks launched cryptocurrency-related initiatives. Akbank announced the acquisition of local cryptocurrency firm Stablex, while Garanti BBVA has now launched a cryptocurrency wallet.

However, Turkey has recently seen an explosion of Web3 activity due to surging demand from its young and rapidly growing user base. One of the latest entrants is the EOS Network Foundation (ENF), which announced a partnership with global cryptocurrency exchange CoinTR to establish a Turkish Web3 Industry Lab.

In a speech in Istanbul attended by government and financial sector representatives, ENF founder and CEO Yves La Rose highlighted Turkey’s potential to become a global leader in grassroots adoption. La Rose said: “Turkey presents a unique combination of high cryptocurrency adoption, an environment shaped by economic factors favorable to digital currencies, and a fast-growing market with enthusiasm for blockchain innovation. The biggest opportunity There will be a focus on stablecoins and TradFi’s ability to adopt them and integrate them into daily operations to drive global growth and demand for the Turkish lira, thereby curbing its hyperinflation. Government CBDC pilot program and Turkish banks on blockchain integration There has been a lot of interest and this is already happening.”

Multi-chain project Serenity Shield also recently announced a strategic expansion into Turkey and the Middle East and North Africa market, thanks to a capital injection from Castrum Capital, which is One of the largest artificial intelligence venture capital institutions in Turkey. In addition to geographic expansion, the partnership will see deeper integration of artificial intelligence into Serenity Shield’s StrongBox, a solution for secure and confidential data storage and digital asset inheritance.

A gathering of the best

Bitget Wallet is another local Web3 company to join the Middle East train, announced at the week-long Devconnect conference in Istanbul in November announced its expansion plans in Turkey. It will focus on developing partnerships with local projects and stakeholders with a view to providing localized Web3 services to the Turkish market. A spokesperson also confirmed that the project plans to integrate the Bitget wallet into use cases “including GameFi and SocialFi for trade execution and value preservation.”

Devconnect is just one of many cryptocurrency-centric events held in Turkey over the past year, further highlighting the country’s status as a hub of activity for the grassroots developer and startup community. In addition to events attracting Ethereum developers, Istanbul also hosts Istanbul Blockchain Week in August, which focuses on Islamic financial solutions. In November, Binance’s newly promoted CEO Richard Teng flew to Turkey to kick off Binance Blockchain Week, while Vitalik Buterin was a star attendee at the “zkDay” event held that same month.

So if one hoped that the announcement of regulation would create barriers and act as a deterrent, the opposite appears to be true. After operating under the cloud of regulatory uncertainty for several years, Web3 innovators see this change as an opportunity to build a stable foundation through the certainty that comes with regulatory clarity. Now that Turkey appears set to offer a system comparable to its EU neighbors, it is poised to further develop into a "land of dragons" in the Web3 space.