New Regulatory Landscape for Web3 in Singapore: Impact and Challenges of the DTSP Framework

Summary

Singapore has attracted numerous Web3 companies due to its flexible regulatory environment, earning the nickname "The Delaware of Asia." However, the surge in shell companies and the collapse of some high-profile firms have exposed regulatory loopholes. In response to these challenges, the Monetary Authority of Singapore ( MAS ) will implement the Digital Token Service Provider ( DTSP ) framework in 2025, requiring all companies providing digital asset services in Singapore to obtain a license. This marks a significant strengthening of regulatory measures while continuing to support innovation in Singapore.

1. The Evolution of Singapore's Regulatory Environment

Singapore has long attracted global businesses due to its clear regulations, low tax rates, and efficient registration processes. This business-friendly environment naturally makes it an ideal choice for Web3 companies. The MAS recognized the potential of cryptocurrencies early on and established a corresponding regulatory framework to provide space for the operations of Web3 companies.

However, the policy direction in Singapore has recently changed. The MAS is gradually tightening regulatory standards and revising relevant frameworks. Data shows that since 2021, the approval rate for over 500 license applications has been less than 10%. This indicates that the MAS has significantly raised approval standards and adopted stricter risk management measures.

2. DTSP Framework: Background and Changes

2.1 Reasons for Regulatory Tightening

In the early days, Singapore attracted a large number of Web3 companies through flexible regulations and a regulatory sandbox. However, the limitations of the existing system have gradually become apparent, particularly the issue of "shell companies." Some businesses register entities in Singapore but operate overseas, exploiting regulatory loopholes in the Payment Services Act (PSA). This structure makes law enforcement against money laundering (AML) and counter-terrorist financing (CFT) difficult.

In 2022, the collapse of some high-profile companies turned these issues into reality. These companies are registered in Singapore but operate overseas, making it difficult for MAS to effectively regulate or enforce, resulting in huge losses and damage to regulatory credibility.

Main Changes of DTSP Regulations 2.2

The DTSP framework will be implemented on June 30, 2025, as part of the Financial Services and Markets Act ( FSMA 2022). The new regulations require all digital asset companies operating from or conducting business in Singapore to obtain a license, regardless of where their users are located. The MAS has made it clear that licenses will not be issued to companies without a substantive business presence.

3. Redefining the Scope of Regulation under the DTSP Framework

The DTSP framework expands the scope of regulation, requiring operators to possess substantive operational capabilities. This includes companies registered in Singapore but operating entirely overseas, as well as companies registered overseas but with core functions in Singapore. Even Singapore residents who participate in projects on a continuous commercial basis may need to comply with DTSP requirements.

Operators need to assess whether their activities in Singapore are regulated and whether they can maintain their business under the new framework. The implementation of DTSP indicates that Singapore is transforming, requiring companies to take on greater responsibilities and comply with stricter discipline.

4. Summary and Outlook

The DTSP regulations in Singapore reflect a shift in the regulatory authorities' attitude towards the crypto industry. This change requires operators to fundamentally adjust their operations in Singapore. Companies that cannot meet the new standards may need to consider adjusting their operational framework or relocating their business base.

However, other potential alternative regions such as Hong Kong, Abu Dhabi, and Dubai also have their own regulatory requirements. Companies should view migration as a strategic decision rather than a simple regulatory avoidance, taking into account various factors comprehensively.

Singapore's new regulatory framework may create barriers to entry in the short term, but it also indicates that the market will be restructured around operators with sufficient responsibility and transparency. In the future, the interaction between institutions and the market will determine whether Singapore can maintain its position as a stable and reliable business environment.