New Singapore Web3 Regulation Landscape: Transformations and Challenges under the DTSP Framework

Overview

Singapore once became the preferred destination for many Web3 companies due to its flexible regulatory environment. However, the surge of shell companies and high-profile corporate collapses have exposed the inadequacies of the existing regulatory framework. In response, the Monetary Authority of Singapore ( MAS ) will implement a Digital Token Service Provider ( DTSP ) framework in 2025, requiring all companies providing digital asset services in Singapore to obtain a license. This initiative marks a significant strengthening of regulatory measures in Singapore while supporting innovation, imposing higher accountability and compliance requirements on Web3 companies.

The Evolution of Singapore's Regulatory Environment

For a long time, Singapore has been favored by global companies due to its clear regulations, low tax rates, and efficient registration processes, earning it the title of "the Delaware of Asia." This business-friendly environment has naturally attracted many Web3 companies. The MAS recognized the potential of cryptocurrencies early on and proactively developed a regulatory framework to provide space for the growth of Web3 enterprises.

However, there has been a shift in policy direction in Singapore recently. 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 has been less than 10%, reflecting a more cautious attitude taken by the regulatory authorities.

DTSP Framework: Background and Changes

Reasons for Tightening Regulation

Singapore's early adoption of flexible policies attracted a large number of Web3 companies, but it also exposed some issues. The most prominent is the phenomenon of "shell companies", where businesses register entities in Singapore but actually operate overseas, exploiting regulatory loopholes in the Payment Services Act (PSA). This practice not only increases the difficulty of enforcing anti-money laundering (AML) and counter-terrorism financing (CFT) regulations but also damages Singapore's regulatory reputation.

The high-profile corporate bankruptcies that occurred in 2022 further highlighted the seriousness of this issue. Although these companies are registered in Singapore, they operate offshore, making it difficult for MAS to effectively regulate or enforce laws, resulting in significant losses.

Major Changes in DTSP Regulations

The DTSP framework will be implemented starting June 30, 2025, aimed at addressing the limitations of the PSA. The new regulations require all digital asset companies based in Singapore or conducting business in Singapore to obtain a license, regardless of where their users are located. This means that companies serving only overseas clients must also comply with the relevant regulations as long as they operate in Singapore.

MAS has clearly stated that it will not issue licenses to companies lacking a substantive business foundation. Companies that fail to meet the requirements within the deadline will be required to cease operations immediately. This initiative reflects Singapore's determination to transform into a trust-centered digital financial hub.

The regulatory scope under the DTSP framework is redefined.

The new framework significantly expands the regulatory scope, covering previously unregulated business types. For example, companies registered in Singapore but operating completely overseas, as well as companies registered overseas but with core functions in Singapore, will be included under the regulatory scope. Even projects in which Singapore residents participate in a continuous business manner may be required to comply with DTSP requirements.

These changes not only expand the scope of regulation but also require operators to have substantial operational capabilities, including anti-money laundering, counter-terrorism financing, technical risk management, and internal control aspects. Companies need to assess whether their activities in Singapore are regulated and whether they can maintain their business under the new framework.

Summary and Outlook

The implementation of the DTSP regulations marks a significant shift in the attitude of Singapore's regulatory authorities towards the crypto industry. This framework shifts from an open experimental space to only supporting operators that meet strict regulatory standards. For Web3 companies, this means a fundamental adjustment to their operational strategies in Singapore.

Companies that cannot meet the new regulatory requirements may need to consider adjusting their operational frameworks or looking for other jurisdictions. However, it is worth noting that other potential alternatives such as Hong Kong, Abu Dhabi, and Dubai are also developing their own cryptocurrency regulatory frameworks, and companies need to comprehensively consider regulatory intensity, methods, and operational costs when making their choices.

Although Singapore's new regulatory framework may create entry barriers in the short term, it also reflects the market's development towards more responsible and transparent practices. The success of this transformation will depend on the sustainability and consistency of these structural changes, as well as the interaction between institutions and the market. In the future, whether Singapore can be recognized as a stable and reliable Web3 business environment remains to be seen.