Written by: Aiden, Jay Jo
Translated by: Plain Blockchain
Summary
Singapore has attracted numerous Web3 companies with its flexible regulatory environment, earning the nickname "Delaware of Asia". However, the proliferation of shell companies and the collapse of high-profile companies like Terraform Labs and 3AC exposed regulatory loopholes.
In 2025, the Monetary Authority of Singapore (MAS) will implement the Digital Token Service Provider (DTSP) framework, requiring all companies providing digital asset services in Singapore to obtain a license, with mere company registration no longer sufficient for digital asset business.
Singapore continues to support innovation but significantly strengthens regulatory measures, with the government demanding greater accountability and compliance. Web3 companies in Singapore need to develop operational capabilities or consider relocating to other jurisdictions.
1. Changes in Singapore's Regulatory Environment
For years, global enterprises have referred to Singapore as the "Delaware of Asia" due to its clear regulations, low corporate tax rates, and quick registration process, which equally applies to the Web3 industry. Singapore's business-friendly environment naturally became an ideal destination for Web3 companies. MAS recognized the growth potential of cryptocurrencies early on, proactively establishing regulatory frameworks that provided space for Web3 companies to operate within the existing system.
MAS issued the Payment Services Act (PSA), incorporating digital asset services into a clear regulatory framework and launching a regulatory sandbox allowing companies to experiment with new business models under specific conditions. These measures reduced early market uncertainty, making Singapore the center of the Asian Web3 industry.
However, Singapore's policy direction has recently changed. MAS is gradually abandoning its flexible regulatory approach, tightening regulatory standards and revising frameworks. Data clearly shows this shift: since 2021, the approval rate has been below 10% among over 500 license applications. This indicates that MAS has significantly raised approval standards and adopted stricter risk management measures within limited regulatory capabilities.
This report explores how these regulatory changes are reshaping Singapore's Web3 landscape.
2. DTSP Framework: Why Now, and What Changes?
2.1. Background of Regulatory Tightening
Singapore recognized the potential of the crypto industry early on, attracting numerous companies through flexible regulations and sandboxes, with many Web3 companies viewing Singapore as their Asian base.
However, the limitations of the existing system gradually became apparent. A key issue was the "shell company" model, where businesses register entities in Singapore but operate overseas, exploiting regulatory gaps in the Payment Services Act (PSA). At the time, PSA only required companies serving Singaporean users to obtain a license, with some companies avoiding this requirement by operating overseas. These companies leveraged Singapore's institutional reputation while evading actual regulation.
MAS believed this structure made Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) enforcement difficult. Although enterprises were registered in Singapore, their operations and fund flows were entirely overseas, making effective regulation challenging. The Financial Action Task Force (FATF) referred to this as an "offshore Virtual Asset Service Provider (VASP)" structure, warning that inconsistencies between registration and operational locations create global regulatory gaps.
The 2022 collapses of Terraform Labs and Three Arrows Capital (3AC) brought these issues into reality. Both companies registered entities in Singapore but operated overseas, rendering MAS unable to effectively regulate or enforce, leading to billions of dollars in losses and damaging Singapore's regulatory credibility. MAS decided to no longer tolerate such regulatory loopholes.
2.2. Key Changes and Impacts of DTSP Regulations
The Monetary Authority of Singapore (MAS) will implement the new Digital Token Service Provider (DTSP) regulations from June 30, 2025, under Part Nine of the Financial Services and Markets Act (FSMA 2022). FSMA integrates MAS's previously dispersed regulatory powers into comprehensive financial legislation to address the new financial environment, including digital assets.
The new regulations aim to address PSA's limitations. While PSA only required companies serving Singaporean users to obtain a license, some companies avoided regulation by operating overseas. The DTSP framework directly targets such structural evasion, mandating that all digital asset companies with Singapore as an operational base or conducting business in Singapore must obtain a license, regardless of user location. Even companies serving only overseas customers must comply if operating in Singapore.
MAS clearly stated it will not issue licenses to companies without substantial business foundations. Companies failing to meet requirements by June 30, 2025, must immediately cease operations. This is not just a temporary enforcement action but a signal of Singapore's long-term transformation into a trust-centered digital financial hub.
3. Redefining Regulatory Scope under DTSP Framework
The DTSP framework requires digital Token service operators in Singapore to comply with more explicit regulatory requirements. MAS demands that any enterprise considered "Singapore-based" obtain a license, regardless of user location or organizational structure. Previously unregulated business types are now within the regulatory scope.
Key examples include companies registered in Singapore but operating entirely overseas, and companies registered overseas with core functions (such as development, management, marketing) in Singapore. Even Singaporean residents participating in projects in a continuous commercial manner might need to comply with DTSP requirements, regardless of formal organizational affiliation. MAS's criteria are clear: Are the activities occurring in Singapore? Do they have a commercial nature?
These changes not only expand the regulatory scope but also require operators to have substantial operational capabilities, including Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT), technological risk management, and internal controls. Operators must assess whether their Singapore activities are regulated and whether they can maintain their business under the new framework.
The DTSP implementation indicates Singapore's transformation, no longer merely a venue for leveraging regulatory reputation. Singapore now demands that enterprises assume responsibilities and discipline above a certain threshold. Companies and individuals hoping to continue crypto business in Singapore must clearly understand their activities, recognize the regulatory impact under DTSP standards, and establish appropriate organizational structures and operational systems when necessary.
4. Conclusion
Singapore's DTSP regulations demonstrate a shift in the regulatory approach to the crypto industry. While MAS previously maintained flexible policies to help new technologies and business models quickly enter the market, this regulatory reform is not simply a tightening but an imposition of clear responsibilities on entities with Singapore as their actual business base. The framework transitions from an open experimental space to supporting only operators meeting regulatory standards.
This change means operators must fundamentally adjust their Singapore operations. Companies unable to meet new regulatory standards may face difficult choices: adjust their operational framework or relocate their business base. Regions like Hong Kong, Abu Dhabi, and Dubai are developing crypto regulatory frameworks in different ways, and some companies might consider these as alternative bases.
However, these jurisdictions also require licenses for services targeting local users or operating within their territories, involving capital requirements, AML standards, and operational substantive rules. Therefore, companies should view relocation as a strategic decision, not a simple regulatory avoidance, comprehensively considering regulatory intensity, approach, and operational costs.
Singapore's new regulatory framework may create entry barriers in the short term but also indicates that the market will be restructured around operators with sufficient responsibility and transparency. The effectiveness of this system depends on whether these structural changes can be sustainable and consistent. Future interactions between institutions and the market will determine whether Singapore can be recognized as a stable and reliable business environment.
