Major Shift in Singapore's Web3 Regulatory Environment

Singapore has long been dubbed the "Delaware of Asia," attracting numerous global companies, including those in the Web3 industry, due to its clear regulations, low tax rates, and efficient business registration processes. The Monetary Authority of Singapore ( MAS ) recognized the potential of cryptocurrencies early on and proactively established a regulatory framework that provides a favorable development environment for Web3 companies.

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

This change stems from the increasing limitations of the existing regulatory framework. A prominent issue is the prevalence of the "shell company" model, where companies 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).

The collapse of Terraform Labs and Three Arrows Capital in 2022 further exposed these issues. Although both companies were registered in Singapore, their actual operations were overseas, which prevented MAS from effectively regulating or enforcing laws, resulting in huge losses and damage to regulatory credibility.

To address these challenges, the MAS will implement new regulations for digital token service providers (DTSP) starting from June 30, 2025. The regulations require that all digital asset companies based in Singapore or conducting business in Singapore must obtain a license, regardless of where their users are located. This change means that companies serving only overseas clients must also comply with the relevant regulations as long as they operate in Singapore.

The DTSP framework has also expanded the scope of regulation to include previously unregulated business types. This includes companies registered in Singapore but operating entirely overseas, as well as companies registered overseas but with core functions in Singapore. Even projects in which Singapore residents participate on a continuous commercial basis may be required to comply with DTSP requirements.

These changes not only expand the scope of regulation but also require operators to have substantive 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.

The regulatory shift in Singapore indicates that it 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 difficult choices: adjusting their operating frameworks to meet new requirements or considering relocating their businesses to other jurisdictions such as Hong Kong, Abu Dhabi, or Dubai.

However, it is worth noting that these alternative regions are also developing their own cryptocurrency regulatory frameworks and may require similar licensing and operational standards. Therefore, companies should view migration as a strategic decision rather than a simple regulatory evasion.

Although Singapore's new regulatory framework may create entry barriers in the short term, it also indicates that the market will be restructured around operators with sufficient responsibility and transparency. The long-term impact of this shift will depend on the sustainability and consistency of these structural changes, as well as whether Singapore can continue to be recognized as a stable and reliable business environment.