The Transformation of Singapore's Web3 Regulatory Environment: A New Landscape under the DTSP Framework

Singapore, with its flexible regulatory environment, once became a favored destination for many Web3 companies and was dubbed "the Delaware of Asia." However, a series of recent events have exposed the loopholes in the existing regulatory system, prompting regulators to reassess their policy direction.

In 2025, the Monetary Authority of Singapore ( MAS ) will launch the digital Token Service Provider ( DTSP ) framework. Under the new regulations, all companies providing digital asset services in Singapore must obtain a license, and merely being a registered company will no longer be sufficient to conduct digital asset business. This initiative aims to strengthen regulatory oversight while maintaining Singapore's position as a hub for innovation.

Evolution of the Regulatory Environment

For a long time, Singapore has attracted global businesses due to its clear regulations, low tax rates, and efficient registration processes. This advantage also applies to the Web3 industry. The MAS recognized the potential of cryptocurrencies early on and actively developed a regulatory framework that provides space for the growth of Web3 companies.

However, there has been a change in policy direction recently. MAS is gradually tightening regulatory standards and revising the existing framework. Data shows that since 2021, the approval rate for license applications has been less than 10%, reflecting MAS's trend of raising approval standards.

DTSP Framework: Responding to New Challenges

Background of tightened regulation

Singapore initially attracted a large number of Web3 companies through flexible policies. However, the limitations of the existing system have gradually become apparent, especially the issues related to the "shell company" model. Some businesses register entities in Singapore while actually operating overseas, exploiting regulatory loopholes to evade supervision.

The collapse of Terraform Labs and Three Arrows Capital in 2022 highlighted the seriousness of this issue. Although these companies were registered in Singapore, their actual operations were overseas, which made it difficult for MAS to effectively regulate them, resulting in significant losses and damage to regulatory credibility.

( Key Changes in DTSP Regulations

The DTSP framework will come into effect on June 30, 2025, as part of the Financial Services and Markets Act ) FSMA 2022###. 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.

MAS has made it clear that it will not grant licenses to companies lacking a substantive business foundation. Companies that fail to meet the requirements must cease operations by June 30, 2025. This marks Singapore's determination to transform into a trust-centered digital financial hub.

Redefinition of Regulatory Scope

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

1. Require companies registered in Singapore but operating entirely overseas to obtain a license.
2. Companies registered overseas but with core functions in Singapore must comply with DTSP requirements.
3. Projects that Singapore residents participate in on a continuous commercial basis may be required to comply with DTSP requirements.

These changes require operators to have substantive operational capabilities, including anti-money laundering, counter-terrorism financing, technical risk management, and internal controls.

Impact and Outlook

Singapore's DTSP regulations reflect a shift in the attitude of regulators towards the crypto industry. The focus has moved from an open experimental space to supporting operators that comply with regulatory standards. This means that companies need to fundamentally adjust their operating strategies in Singapore.

Companies that fail to meet the new standards may need to consider adjusting their operational frameworks or relocating their business bases. Locations such as Hong Kong, Abu Dhabi, and Dubai may become alternative options, but these regions also have their specific regulatory requirements. Companies should view relocation as a strategic decision, comprehensively assessing regulatory intensity, methods, and operational costs.

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