Honestly, i've always thought of the Crystal Empire as more of a city than an actual kingdom/empire but in terms of whether it's a part of Equestria or it's own nation, similar to your puppet state theory, i personally believe that since it's been established that the crystal ponies have their own unique customs and holidays in the Crystal Empire i'd say the Crystal Empire is sorta like a sub nation par to the rest of Equestria they may make their own laws and what not but the empires alliance with Equestria probably states what even though the empire is it's own separate nation they still have to follow Equestrian law...at least that's how i see it.
It's honestly the name that confuses me the most, it's called an "empire" that's ran by a pony that goes by "princess" even though the name "Empire" implies an Emperor/Empress.
Honestly, i've always thought of the Crystal Empire as more of a city than an actual kingdom/empire but in terms of whether it's a part of Equestria or it's own nation, similar to your puppet state theory, i personally believe that since it's been established that the crystal ponies have their own unique customs and holidays in the Crystal Empire i'd say the Crystal Empire is sorta like a sub nation par to the rest of Equestria they may make their own laws and what not but the empires alliance with Equestria probably states what even though the empire is it's own separate nation they still have to follow Equestrian law...at least that's how i see it.
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It's honestly the name that confuses me the most, it's called an "empire" that's ran by a pony that goes by "princess" even though the name "Empire" implies an Emperor/Empress.
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Anyways, I cannot conclude if Crystal Empire is part of Equestria in the show or not. There is no independent/dependent proofs.