The Evolution of Singapore's Web3 Regulatory Landscape: From Flexible to Strict

Singapore has long attracted numerous Web3 companies due to its flexible regulatory environment and business-friendly policies, earning it the title of "Asia's Delaware." However, recent shifts in regulatory direction are reshaping the Web3 landscape in the country.

Background of Regulatory Tightening

In the early days, Singapore attracted a large number of Web3 companies through flexible regulations and regulatory sandboxes. However, as the industry developed, the limitations of the existing system gradually became apparent. One major issue is the "shell company" model, where companies register entities in Singapore but operate overseas, exploiting regulatory loopholes in the Payment Services Act (PSA).

This structure makes law enforcement against anti-money laundering ( AML ) and counter-terrorism financing ( CFT ) difficult. The collapse of Terraform Labs and Three Arrows Capital ( 3AC ) in 2022 further highlighted these issues, resulting in billions of dollars in losses and damaging Singapore's regulatory reputation.

DTSP Framework: Key Changes and Impacts

To address these challenges, the Monetary Authority of Singapore (MAS) will implement new regulations for digital Token Service Providers (DTSP) starting from June 30, 2025. The regulations aim to address the limitations of the PSA, requiring all digital asset companies operating in or conducting business in Singapore to obtain a license, regardless of where their users are located.

MAS has clearly stated that it will not issue licenses to companies without a substantial business foundation. This is not just a temporary enforcement action, but a signal of Singapore's long-term transformation into a trust-centered digital financial hub.

Redefinition of Regulatory Scope

The DTSP framework expands the regulatory scope, requiring operators to have substantive operational capabilities, including AML, CFT, technology risk management, and internal controls. Even Singapore residents who participate in projects on a continuous business basis may need to comply with DTSP requirements.

These changes require businesses to take on greater responsibility and discipline. Companies and individuals wishing to continue their cryptocurrency operations in Singapore must have a clear understanding of their activities, recognize the regulatory implications under the DTSP standards, and establish appropriate organizational structures and operational systems when necessary.

Impact on the Industry and Future Outlook

The new regulatory framework may create barriers to entry in the short term, but it also indicates that the market will be restructured around operators that demonstrate sufficient responsibility and transparency. Companies that cannot meet the new regulatory standards may face a difficult choice: adjust their operational framework or relocate their business base.

Although places like Hong Kong, Abu Dhabi, and Dubai are developing cryptocurrency regulatory frameworks in different ways, these regions also require licenses for local users or services operating within their jurisdictions. Therefore, companies should view migration as a strategic decision rather than a simple regulatory avoidance.

Singapore's regulatory shift reflects a change in attitude towards the cryptocurrency industry, moving from an open experimental space to only supporting operators that meet regulatory standards. The effectiveness of this shift will depend on whether these structural changes are sustainable and consistent. In the future, whether Singapore can be recognized as a stable and reliable business environment will be determined by the interaction between institutions and the market.