Weaponizing Sovereignty Against Crypto: Türkiye’s Post-COVID Defense of the Lira in an Age of Decentralized Finance

Weaponizing Sovereignty Against Crypto: Türkiye’s Post-COVID Defense of the Lira in an Age of Decentralized Finance | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Weaponizing Sovereignty Against Crypto: Türkiye’s Post-COVID Defense of the Lira in an Age of Decentralized Finance Farnam Rami This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-7162819/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract Emerging market governments increasingly prioritize the defense of monetary sovereignty over the liberalization of financial innovation, particularly under conditions of macroeconomic fragility, high inflation, and geopolitical uncertainty. This study analyzes Türkiye’s post‑COVID financial landscape as a critical case through which to examine state strategies aimed at resisting the systemic adoption of cryptocurrencies. Despite escalating grassroots demand for digital assets—driven by Lira depreciation, inflationary pressures, and declining institutional trust—the Turkish government has leveraged a combination of regulatory, monetary, and legal instruments to preserve the Lira’s role as the exclusive legal tender. Utilizing theories of monetary sovereignty and financial statecraft, alongside recent literature on crypto regulation in emerging markets and empirical insights from IMF and BIS analyses on FX interventions, this paper formulates a structured set of research questions and hypotheses to interrogate the relationship between cryptocurrency adoption, FX volatility, and institutional resistance. Methodologically, the study employs ordinary least squares (OLS) regressions with Newey-West corrections, lagged models, and event studies centered on Türkiye’s key regulatory milestones (2021–2024) to capture causal dynamics and policy feedback loops. Findings demonstrate a robust correlation between increased BTC/TRY volumes and TRY/USD volatility, underscoring the self-reinforcing nature of speculative feedback loops in fragile monetary environments. The evidence shows that heightened crypto adoption amplifies FX volatility through TRY Volatility Feedback Effects (TFF), particularly during geopolitical crises such as the June 2025 Middle East conflict, where BTC’s decline and USD’s appreciation reaffirmed the persistence of traditional safe-haven behaviors. Türkiye’s institutional response intensified proportionally through bans on crypto payments, licensing regimes, enhanced FX market interventions, and rhetorical strategies aimed at reaffirming sovereign monetary control. Although cryptocurrencies function as informal hedging mechanisms for households, this study confirms they cannot sustainably displace fiat currencies where sovereign defenses remain actively enforced. Instead, they exacerbate volatility, prompting reactive state interventions. This research contributes to broader debates on financial sovereignty in emerging markets by offering Türkiye as a paradigmatic example of how states leverage legal, monetary, and infrastructural tools to constrain decentralized finance amid persistent macroeconomic vulnerabilities. Moreover, the study introduces ValueMesh™, a novel sovereign-aligned alternative developed within Türkiye’s emerging financial ecosystem through the DevPay Türkiye platform. ValueMesh bridges the gap between public demand for high-yield, participatory finance and state imperatives of monetary sovereignty by offering regulated, project-specific micro-equity participation without reliance on blockchain-based assets. This innovation demonstrates that the psychological appeal of crypto speculation can be redirected into legally sanctioned, productive, and sovereign-controlled fintech architectures. Ultimately, Türkiye’s experience illustrates that the future of financial innovation in fragile economies lies not in decentralized disruption but in carefully engineered, state-backed digital ecosystems that integrate speculative incentives within sovereign frameworks. This positions Türkiye’s post-COVID monetary strategy as a critical reference point for policymakers, scholars, and industry leaders examining the evolving interplay between financial sovereignty, decentralized finance, and geopolitical risk. Finance International Economics Artificial Intelligence and Machine Learning Other Economics Türkiye monetary sovereignty decentralized finance cryptocurrency adoption FX volatility financial statecraft Bitcoin peer-to-peer finance capital controls institutional resistance emerging markets DevPay Türkiye ValueMesh financial innovation sovereign fintech regulatory frameworks financial infrastructure financial inclusion macroeconomic fragility speculative finance Full Text Additional Declarations The authors declare no competing interests. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. 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Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-7162819","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":487751428,"identity":"4cec7c96-074e-4466-be60-d983a0017230","order_by":0,"name":"Farnam Rami","email":"data:image/png;base64,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","orcid":"https://orcid.org/0009-0000-2849-4813","institution":"DevPay Türkiye","correspondingAuthor":true,"prefix":"","firstName":"Farnam","middleName":"","lastName":"Rami","suffix":""}],"badges":[],"createdAt":"2025-07-19 07:54:51","currentVersionCode":1,"declarations":{"humanSubjects":false,"vertebrateSubjects":true,"conflictsOfInterestStatement":false,"humanSubjectEthicalGuidelines":false,"humanSubjectConsent":false,"humanSubjectClinicalTrial":false,"humanSubjectCaseReport":false,"vertebrateSubjectEthicalGuidelines":true},"doi":"10.21203/rs.3.rs-7162819/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-7162819/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":87249577,"identity":"96674697-caba-4c3f-abb3-77967eda30bd","added_by":"auto","created_at":"2025-07-22 04:06:34","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":994768,"visible":true,"origin":"","legend":"","description":"","filename":"WeaponizingSovereigntyAgainstCryptoTurkiyesPostCOVIDDefenseoftheLirainanAgeofDecentralizedFinance.pdf","url":"https://assets-eu.researchsquare.com/files/rs-7162819/v1_covered_f039f5f0-6118-4315-908a-1e2d5ecd7ec6.pdf"}],"financialInterests":"The authors declare no competing interests.","formattedTitle":"\u003cp\u003e\u003cstrong\u003eWeaponizing Sovereignty Against Crypto: Türkiye’s Post-COVID Defense of the Lira in an Age of Decentralized Finance\u003c/strong\u003e\u003c/p\u003e","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":true,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Türkiye, monetary sovereignty, decentralized finance, cryptocurrency adoption, FX volatility, financial statecraft, Bitcoin, peer-to-peer finance, capital controls, institutional resistance, emerging markets, DevPay Türkiye, ValueMesh, financial innovation, sovereign fintech, regulatory frameworks, financial infrastructure, financial inclusion, macroeconomic fragility, speculative finance","lastPublishedDoi":"10.21203/rs.3.rs-7162819/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-7162819/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eEmerging market governments increasingly prioritize the defense of monetary sovereignty over the liberalization of financial innovation, particularly under conditions of macroeconomic fragility, high inflation, and geopolitical uncertainty. This study analyzes Türkiye’s post‑COVID financial landscape as a critical case through which to examine state strategies aimed at resisting the systemic adoption of cryptocurrencies. Despite escalating grassroots demand for digital assets—driven by Lira depreciation, inflationary pressures, and declining institutional trust—the Turkish government has leveraged a combination of regulatory, monetary, and legal instruments to preserve the Lira’s role as the exclusive legal tender.\u003c/p\u003e\n\u003cp\u003eUtilizing theories of monetary sovereignty and financial statecraft, alongside recent literature on crypto regulation in emerging markets and empirical insights from IMF and BIS analyses on FX interventions, this paper formulates a structured set of research questions and hypotheses to interrogate the relationship between cryptocurrency adoption, FX volatility, and institutional resistance. Methodologically, the study employs ordinary least squares (OLS) regressions with Newey-West corrections, lagged models, and event studies centered on Türkiye’s key regulatory milestones (2021–2024) to capture causal dynamics and policy feedback loops.\u003c/p\u003e\n\u003cp\u003eFindings demonstrate a robust correlation between increased BTC/TRY volumes and TRY/USD volatility, underscoring the self-reinforcing nature of speculative feedback loops in fragile monetary environments. The evidence shows that heightened crypto adoption amplifies FX volatility through TRY Volatility Feedback Effects (TFF), particularly during geopolitical crises such as the June 2025 Middle East conflict, where BTC’s decline and USD’s appreciation reaffirmed the persistence of traditional safe-haven behaviors. Türkiye’s institutional response intensified proportionally through bans on crypto payments, licensing regimes, enhanced FX market interventions, and rhetorical strategies aimed at reaffirming sovereign monetary control.\u003c/p\u003e\n\u003cp\u003eAlthough cryptocurrencies function as informal hedging mechanisms for households, this study confirms they cannot sustainably displace fiat currencies where sovereign defenses remain actively enforced. Instead, they exacerbate volatility, prompting reactive state interventions. This research contributes to broader debates on financial sovereignty in emerging markets by offering Türkiye as a paradigmatic example of how states leverage legal, monetary, and infrastructural tools to constrain decentralized finance amid persistent macroeconomic vulnerabilities.\u003c/p\u003e\n\u003cp\u003eMoreover, the study introduces ValueMesh™, a novel sovereign-aligned alternative developed within Türkiye’s emerging financial ecosystem through the DevPay Türkiye platform. ValueMesh bridges the gap between public demand for high-yield, participatory finance and state imperatives of monetary sovereignty by offering regulated, project-specific micro-equity participation without reliance on blockchain-based assets. This innovation demonstrates that the psychological appeal of crypto speculation can be redirected into legally sanctioned, productive, and sovereign-controlled fintech architectures.\u003c/p\u003e\n\u003cp\u003eUltimately, Türkiye’s experience illustrates that the future of financial innovation in fragile economies lies not in decentralized disruption but in carefully engineered, state-backed digital ecosystems that integrate speculative incentives within sovereign frameworks. This positions Türkiye’s post-COVID monetary strategy as a critical reference point for policymakers, scholars, and industry leaders examining the evolving interplay between financial sovereignty, decentralized finance, and geopolitical risk.\u003c/p\u003e","manuscriptTitle":"Weaponizing Sovereignty Against Crypto: Türkiye’s Post-COVID Defense of the Lira in an Age of Decentralized Finance","msid":"","msnumber":"","nonDraftVersions":[{"code":1,"date":"2025-07-22 03:58:24","doi":"10.21203/rs.3.rs-7162819/v1","editorialEvents":[{"type":"communityComments","content":0}],"status":"published","journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true}}],"origin":"","ownerIdentity":"551e6dfb-e8d5-4751-a44c-afc41c57f68e","owner":[],"postedDate":"July 22nd, 2025","published":true,"recentEditorialEvents":[],"rejectedJournal":[],"revision":"","amendment":"","status":"posted","subjectAreas":[{"id":51783881,"name":"Finance"},{"id":51783882,"name":"International Economics"},{"id":51783883,"name":"Artificial Intelligence and Machine Learning"},{"id":51783884,"name":"Other Economics"}],"tags":[],"updatedAt":"2025-07-22T03:58:24+00:00","versionOfRecord":[],"versionCreatedAt":"2025-07-22 03:58:24","video":"","vorDoi":"","vorDoiUrl":"","workflowStages":[]},"version":"v1","identity":"rs-7162819","journalConfig":"researchsquare"},"__N_SSP":true},"page":"/article/[identity]/[[...version]]","query":{"redirect":"/article/rs-7162819","identity":"rs-7162819","version":["v1"]},"buildId":"XKTyCvWXoU3ODBz1xrDgd","isFallback":false,"isExperimentalCompile":false,"dynamicIds":[84888],"gssp":true,"scriptLoader":[]}