Significant Shift in Singapore's Web3 Regulatory Environment

Singapore has long attracted numerous Web3 companies with its open business environment and flexible regulatory policies, earning the title of "the Delaware of Asia." However, there has recently been a noticeable tightening trend in the country's regulatory policies, and this change will have far-reaching implications for the Web3 industry landscape.

Background of Regulatory Policy Shift

The early Singapore government keenly recognized the development potential of cryptocurrencies and proactively established relevant regulatory frameworks, creating a favorable environment for the growth of Web3 companies. The enactment of the Payment Services Act and the introduction of regulatory sandboxes further reduced market uncertainty and solidified Singapore's position as a Web3 hub in Asia.

However, in recent years, regulators have gradually recognized the limitations of the existing system. Some companies exploit regulatory loopholes by registering shell companies in Singapore while actually operating overseas, thereby evading effective regulation. This not only increases the difficulty of anti-money laundering and anti-terrorist financing enforcement but also undermines Singapore's regulatory reputation. The collapse of Terraform Labs and Three Arrows Capital in 2022 further exposed the severity of this issue.

Key Changes in the DTSP Framework

To address the aforementioned challenges, the Monetary Authority of Singapore (MAS) will implement the Digital Token Service Provider (DTSP) framework starting from June 30, 2025. This framework is part of the Financial Services and Markets Act and aims to comprehensively regulate the digital asset industry.

The core change of the DTSP framework is:

1. Expand the scope of regulation: All digital asset companies operating from Singapore or conducting business in Singapore must obtain a license, regardless of where their users are located.

2. Enhance substantive requirements: MAS has clearly stated that it will not issue licenses to companies without a substantive business foundation.

3. Strengthen compliance standards: Operators must have the capabilities for anti-money laundering, counter-terrorism financing, technological risk management, and internal controls.

These changes mean that simply registering a company in Singapore is no longer sufficient to conduct digital asset business. Businesses must establish substantial operations locally and meet higher regulatory standards.

Impact on the Web3 Industry

The implementation of the DTSP framework is expected to have a significant impact on Singapore's Web3 ecosystem:

1. Industry reshuffle: Companies that cannot meet the new standards may be forced to cease operations or relocate to other jurisdictions.

2. Rising operational costs: Companies need to invest more resources to meet compliance requirements.

3. Market Reconstruction: In the long term, the market will be reconstructed around operators that possess sufficient responsibility and transparency.

4. Increased international competition: locations such as Hong Kong, Abu Dhabi, and Dubai may become alternative choices for some companies.

Conclusion

Singapore's regulatory shift reflects its changing attitude towards the Web3 industry, moving from encouraging innovation to emphasizing responsibility and compliance. This transition may cause some market volatility in the short term, but in the long run, it is expected to establish a more stable and reliable business environment. Web3 companies need to carefully assess their own situations and make appropriate adjustments to adapt to this new regulatory landscape.