New Web3 Regulatory Landscape in Singapore: Reforms and Challenges under the DTSP Framework

Singapore has long been hailed as the "Delaware of Asia," with its clear regulations, low tax rates, and efficient registration processes attracting numerous global companies, especially in the Web3 industry. The Monetary Authority of Singapore (MAS) recognized the potential of cryptocurrencies early on and has established a corresponding regulatory framework, providing a friendly operating environment for Web3 companies.

However, in recent years, Singapore's regulatory attitude has undergone significant changes. The MAS has gradually tightened regulatory standards and revised the relevant framework. Data shows that since 2021, the approval rate for over 500 license applications is less than 10%, reflecting that the MAS has significantly raised the approval standards and adopted stricter risk management measures.

DTSP Framework: Background and Changes in Regulatory Tightening

Singapore initially attracted a large number of Web3 companies through flexible regulations and regulatory sandboxes. However, over time, the limitations of the existing system have gradually become apparent. One major issue is the "shell company" model, where businesses register entities in Singapore but operate abroad, exploiting regulatory loopholes in the Payment Services Act (PSA). This structure complicates the enforcement of anti-money laundering (AML) and counter-terrorism financing (CFT).

The collapse of Terraform Labs and Three Arrows Capital in 2022 exposed these issues. Although both companies are registered in Singapore, they actually operate overseas, making it impossible for MAS to effectively regulate or enforce, resulting in huge losses and damage to Singapore's regulatory reputation.

To address these challenges, MAS will implement new regulations for digital token service providers (DTSP) starting from June 30, 2025. The new regulations require that all digital asset companies operating from or doing business in Singapore must obtain a license, regardless of where their users are located. MAS has made it clear that licenses will not be issued to companies without a substantive business basis.

Redefining the Scope of Regulation under the DTSP Framework

The DTSP framework expands the scope of regulation to include previously unregulated types of business. Key changes include:

1. Companies registered in Singapore but operating entirely overseas are required to obtain a license.
2. Companies registered overseas but with core functions in Singapore must comply with DTSP requirements.
3. Residents of Singapore participating in the project in a continuous commercial manner may need to comply with DTSP requirements.

These changes require operators to have substantial operational capabilities, including AML, CFT, technical risk management, and internal controls. The company needs to assess whether its activities in Singapore are regulated and whether it can maintain its business under the new framework.

Impact and Outlook

The implementation of the DTSP regulations marks a significant shift in Singapore's attitude towards the cryptocurrency industry. The MAS has moved from a flexible policy to imposing clear responsibilities on actual business bases. This change requires operators to fundamentally adjust their operating models in Singapore.

Companies that cannot meet the new regulatory standards may need to consider adjusting their operational framework or relocating their business base. Places like Hong Kong, Abu Dhabi, and Dubai are developing their own cryptocurrency regulatory frameworks, which may become alternative options for some companies. However, these regions also have their own regulatory requirements, and companies need to comprehensively consider the intensity of regulation, methods, and operational costs.

Singapore's new regulatory framework may create entry barriers in the short term, but it also indicates that the market will restructure around operators with sufficient responsibility and transparency. The effectiveness of this system depends on whether these structural changes are sustainable and consistent. The future interaction between institutions and the market will determine whether Singapore can continue to be recognized as a stable and reliable Web3 business environment.