New Regulatory Landscape for Web3 in Singapore: DTSP Framework Triggers Industry Restructuring

Singapore has been dubbed the "Delaware of Asia" due to its flexible regulatory environment, attracting numerous Web3 companies to set up operations there. However, recent changes in regulatory policies are reshaping this landscape. The surge of shell companies and the collapse of some high-profile enterprises have exposed the loopholes in the existing regulatory framework, prompting the Monetary Authority of Singapore ( MAS ) to adopt stricter regulatory measures.

In 2025, MAS will implement the digital Token service provider (DTSP) framework, requiring all companies providing digital asset services in Singapore to obtain a license. This change means that merely being registered as a company in Singapore will no longer be sufficient to conduct digital asset business. While Singapore continues to support innovation, regulatory oversight has significantly strengthened, imposing higher demands on corporate responsibility and compliance.

Evolution of the Regulatory Environment

Singapore has long attracted global businesses, including the Web3 industry, due to its clear regulations, low tax rates, and efficient registration processes. The MAS recognized the potential of cryptocurrencies early on and proactively developed a regulatory framework that provides operational space for Web3 companies. The issuance of the Payment Services Act (PSA) and the launch of a regulatory sandbox further reduced market uncertainties.

However, in recent years, Singapore's policy direction has changed. The MAS has gradually tightened regulatory standards and revised existing frameworks. Data shows that since 2021, the approval rate for license applications has been below 10%, reflecting that the MAS has significantly raised approval standards and adopted stricter risk management measures.

DTSP Framework: Addressing Regulatory Challenges

The background of the launch of the DTSP framework is the increasing limitations of the existing regulatory system. The "shell company" model has become a key issue, where some companies register entities in Singapore but actually operate overseas, circumventing the regulatory requirements of the PSA. This practice not only takes advantage of Singapore's institutional credibility but also poses challenges for anti-money laundering ( AML ) and counter-terrorism financing ( CFT ) enforcement.

The bankruptcies of certain well-known companies in 2022 further highlighted these issues. Although these companies are registered in Singapore, their actual operations are overseas, making it difficult for MAS to effectively regulate or enforce, resulting in significant losses and damaging Singapore's regulatory reputation.

The DTSP framework aims to address these issues. It requires all digital asset companies operating out of Singapore or conducting business in Singapore to obtain a license, regardless of where their users are located. This regulation directly targets the previous regulatory gaps and ensures a more comprehensive regulatory coverage.

Regulatory Scope under the DTSP Framework

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

The MAS has clearly stated that it will not issue licenses to companies without a substantial business foundation. This means that businesses need to have substantial operational capabilities, including aspects such as AML, CFT, technology risk management, and internal controls.

Impact on the Industry and Future Outlook

The implementation of the DTSP regulations marks a significant shift in the attitude of Singapore's regulatory authorities towards the cryptocurrency industry. This is not merely a tightening of regulations, but rather an imposition of clear responsibilities on entities operating in Singapore. Businesses must fundamentally adjust their operational models to comply with the new regulatory standards.

Companies that cannot meet the new requirements may need to consider adjusting their operational framework or relocating their business base. Regions such as Hong Kong, Abu Dhabi, and Dubai are developing their respective crypto regulatory frameworks, which may become alternative options for some companies. However, these regions also have their specific regulatory requirements, and businesses need to comprehensively consider various factors when making relocation decisions.

Although Singapore's new regulatory framework may create some entry barriers in the short term, it also signals that the market will be restructured around operators with sufficient accountability and transparency. The effectiveness of this system will depend on whether these structural changes can be implemented consistently and sustainably. In the future, the interaction between institutions and the market will determine whether Singapore can continue to maintain its position as a stable and reliable business environment.