Separation of Powers in the Blockchain Ecosystem
Could Türkiye lose its competitive edge in cryptocurrency with the new FTX platforms it regulates itself?
The world’s largest exchange, the largest custodian, the largest validator, and the largest RPC data provider… FTX, once the “largest” of everything, caused one of the greatest tragedies in the crypto industry with its collapse. This downfall was not merely a result of poor management or accounting errors; it was the manifestation of a systemic risk where a chain of minor errors escalated into a catastrophic crisis.
In the FTX model, the exchange (platform), custodian, market maker (Alameda), and data providers (validators and RPC providers) were all tied to a single center. The entity holding the keys to the assets was the same as the entity matching the orders; furthermore, the largest validator of the most important blockchain networks where these assets resided and the infrastructure providing the data flow were also part of the same structure.
The history of financial markets is a history of crises created by unchecked power and the regulations written in their aftermath. For this reason, the separation of the “Legislative, Executive, and Judicial” branches, the indispensable building blocks of modern states, manifests itself clearly in traditional capital markets through the trio of: The Exchange, Clearing Settlement-Custody, and Data Providers. To protect investors and eliminate systemic risk, the Capital Markets Board of Türkiye (CMB) separates these three branches with sharp lines. Borsa Istanbul is merely a platform where orders are matched; Takasbank handles the clearing of assets, and the Central Securities Depository (MKK) handles ultimate custody. Data providers like Bloomberg compete with other industry stakeholders to ensure accurate data flow. No single actor can exercise absolute dominance over the entire system. These actors are legally prohibited from having organic commercial ties; the law protects this non-affiliation, and the CMB strictly enforces it.
The “Rings of Power” in Crypto: Exchange, Custodian, and Data Providers
As Türkiye establishes its legal framework for Crypto Asset Service Providers (CASPs), it must replicate the “Exchange, Clearing-Custody, and Data Provider” structure of traditional markets. Establishing “Exchange, Custodian, and Data Provider” branches for the crypto market and drawing rigid regulatory boundaries between them is essential to secure not just the interfaces, but the very capillaries of the system.
The standards set by the CMB for platforms and custodians in current CASP regulations are highly valuable. However, for these standards to be fully effective, the principle of “organic and theoretical separation” must not be compromised. To ensure the system is not susceptible to FTX like crises, it is imperative that a crypto asset trading platform has no organic ties, overlapping ownership structures, or background privileges with the custodial entity. The platform should remain solely a technology provider and matching engine, while custodial services are carried out by independent, insured entities isolated by the CMB. Otherwise, in a moment of crisis, the impulse for a platform to finance its own operational risks with funds from the custodial vault cannot be prevented.
The Ecosystem’s Blind Spot: Data Providers and the RPC Providers
Regulatory discussions often revolve around the financial ratios of exchanges and custodial infrastructures. Yet, there is a critical third pillar that forms the infrastructural backbone of the ecosystem, currently residing in a “gray area” outside of regulation: Data Providers and RPC (Remote Procedure Call) Infrastructure Providers.
RPC nodes serve as the communication bridge between a user’s wallet (or an exchange’s interface) and the blockchain itself. Updating price feeds, displaying user balances, or sending a transfer order to the network depends entirely on the health of this infrastructure. The fact that data and infrastructure providers are not yet defined as service providers in current regulations leaves the Turkish crypto sector vulnerable to external shocks and asymmetric risks.
Currently, CASPs procure their RPC and data provider needs from foreign companies, mostly registered in offshore jurisdictions. To put it clearly: you are accessing the Ethereum blockchain through data centers located in the deserts of Dubai, owned by a company registered in the Cayman Islands.
The Impact of Foreign Dependency on Systemic Health: The “October 10 Incident”
One does not need theoretical hypotheses to understand the disasters that lack of oversight and foreign dependency in data provision can cause; the “October 10 Incident,” etched into the industry’s memory, is the most concrete proof.
On October 10, a day of extraordinary stress and sudden volatility in global markets triggered by President Trump’s announcement that he might cancel a planned meeting with President Xi, major foreign RPC providers, used by almost all local platforms, resorted to capacity throttling and filtering to protect their own systems. Consequently, access to blockchains from the country nearly ground to a halt. This paralyzed operations in Türkiye and paved the way for the victimization of hundreds of thousands of investors. Orders that could not be executed, crashing global cryptocurrencies, and the access crisis resulted in the transfer of tens of millions of dollars worth of assets held in Türkiye to foreign entities.
The technical breakdowns during the crisis were as follows:
Access Barriers and HTTP Errors: Foreign infrastructure providers implemented aggressive Rate-Limiting on queries originating from regions like Türkiye to ease server load. Users faced HTTP 404 and HTTP 429 (Too Many Requests) errors and saw their balances as zero. Investors in Western Europe and North America were prioritized over those in Türkiye, proving that foreign dependency in data provision carries a heavy price.
Critical Latency Spikes: Query response times, which should normally range between 50 ms and 150 ms, spiked to over 5000 ms or resulted in direct timeouts. This paralyzed arbitrage mechanisms and price-update bots.
De Facto Censorship and Mempool Disconnection: At the most critical stage, orders for margin top-ups or urgent position closures could not be transmitted to the Mempool (the blockchain’s waiting room). The prioritization of global VIP customers and central geographies by foreign providers meant that the orders of Turkish investors were effectively blocked from entering the network a form of de facto censorship.
However, companies capable of providing all the data required by CASPs have already emerged in Türkiye and are serving globally. By utilizing the services of Turkish Data Providers located within the country, both CASPs and the national economy can access services that offer:
No risk of censorship or access denial.
No risk of data sovereignty violations.
The retention of tens of millions of dollars in foreign exchange within the country.
High-priority, native-language support instead of low-priority foreign support.
Full compliance with the regulations of Turkish courts and regulatory authorities.
Policy Proposal: The “Data Sovereignty Branch” Must Be Recognized
To eliminate systemic risks and complete the CMB’s vision of “separation of powers,” data providers must be brought into a legal framework. For the sustainability of the Turkish ecosystem, three fundamental rules are proposed to regulators:
I. Definition and Licensing of Service Providers Companies providing data flows, RPC services, and wallet integration infrastructure should be defined as “Crypto Sector Infrastructure and Data Providers” in CMB communiqués. These institutions should be subject to minimum standards for cybersecurity, redundancy, and SLAs (Service Level Agreements/Uptime guarantees). Rather than defining these companies as CASPs (like custodians or exchanges), it would be more appropriate to define them similarly to the electronic money service provider licenses issued by the Central Bank of the Republic of Türkiye (CBRT).
II. Domestic Entity Requirement Providers offering critical infrastructure services to CASPs operating in Türkiye must be required to be joint-stock companies (A.Ş.) incorporated in Türkiye. This ensures a legally accountable entity is in place in the event of service interruptions or intentional restrictions.
III. Data Sovereignty and Local Server Requirements The sovereignty of financial data is a component of national security. It should be mandatory for RPC servers that process the transaction data of Turkish users, transmit them to the blockchain, and maintain the infrastructure to be physically hosted within the borders of Türkiye. This step ensures compliance with the PDPL (Personal Data Protection Law / KVKK) and prevents the system from being affected by foreign-sourced interruptions during international crises or global internet bottlenecks.
Outro
The principle of “Don’t trust, verify,” which lies at the heart of blockchain philosophy, applies not only to software code but also to the institutional architecture of the market. The health of a sector depends on creating an ecosystem where actors can audit one another and no single institution can unilaterally determine the fate of the system.
A model where the branches of exchange, custody, and data provision are strictly separated, supported by local servers and data sovereignty, will contribute to the vision of transforming Türkiye from a mere “consumer base” into a secure “Financial Hub” in the global crypto market. It must not be forgotten: those who entrust their infrastructure to others will always find their financial independence hanging by a thread.