Major Shift in Singapore's Web3 Regulatory Landscape

Singapore is undergoing significant changes in its Web3 regulatory environment. For a long time, this city-state has been hailed as the "Delaware of Asia" due to its flexible regulations, low tax rates, and efficient registration processes, attracting numerous global enterprises, especially those in the Web3 sector. The Monetary Authority of Singapore (MAS) recognized the potential of cryptocurrencies early on and established corresponding regulatory frameworks, creating a favorable operating environment for Web3 businesses.

However, there has been a significant change in Singapore's policy direction recently. The MAS is gradually tightening regulatory standards and revising relevant frameworks. Data shows that since 2021, the approval rate for over 500 license applications has been less than 10%, reflecting a substantial increase in approval standards and stricter risk management measures.

The background of this transformation includes the highlighting of the "shell company" issue. Some businesses register entities in Singapore but operate overseas, exploiting regulatory loopholes in the Payment Services Act (PSA). This practice complicates the enforcement of anti-money laundering (AML) and counter-terrorism financing (CFT) measures. In 2022, the collapse of Terraform Labs and Three Arrows Capital (3AC) further exposed these issues, resulting in significant losses and damage to Singapore's regulatory reputation.

To address these challenges, the MAS will implement new regulations for Digital Token Service Providers (DTSP) on June 30, 2025. This framework requires all digital asset companies operating in or based in Singapore to obtain a license, regardless of the location of their users. The MAS has made it clear that licenses will not be granted to companies that lack a substantive business basis.

The DTSP framework expands the scope of regulation to cover previously unregulated business types. This includes companies registered in Singapore but operating entirely overseas, as well as companies registered overseas but whose core functions are in Singapore. Projects in which Singapore residents participate in a continuous commercial manner may also be required to comply with DTSP requirements.

These changes not only expand the regulatory scope but also require operators to have substantial operational capabilities, including aspects such as AML, CFT, technical risk management, and internal controls. Companies need to assess whether their activities in Singapore are regulated and whether they can maintain their business under the new framework.

Singapore's regulatory shift indicates that the country is moving from an open experimental space to one that only supports operators that meet strict regulatory standards. This may lead some companies to face a difficult choice: adjust their operational framework or relocate their business base. Regions such as Hong Kong, Abu Dhabi, and Dubai may become alternative bases considered by some companies, but these areas also have their specific regulatory requirements.

Although it may create entry barriers in the short term, Singapore's new regulatory framework also reflects that the market will restructure around operators that possess sufficient responsibility and transparency. The effectiveness of this system will depend on whether these structural changes are sustainable and consistent. In the future, the interaction between institutions and the market will determine whether Singapore can continue to be recognized as a stable and reliable business environment.