Singapore's Web3 Industry Regulation Tightens: DTSP Framework Will Reshape the Digital Asset Landscape

Overview

Singapore has attracted numerous Web3 companies with its flexible regulatory environment, earning the title of "Asia's Delaware." However, the surge of shell companies and some high-profile company bankruptcies have exposed regulatory loopholes. In response, 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 in Singapore while supporting innovation, imposing higher responsibilities and compliance requirements on businesses.

The Evolution of the Regulatory Environment in Singapore

For many years, Singapore has attracted global companies, including those in the Web3 industry, with clear regulations, low tax rates, and convenient registration processes. The MAS recognized the potential of cryptocurrencies early on and established a corresponding regulatory framework, creating a favorable development environment for Web3 companies.

However, the policy direction in Singapore has recently changed. MAS has gradually tightened regulatory standards and revised related frameworks. Data shows that since 2021, the approval rate for license applications has been below 10%, reflecting that MAS has significantly raised the approval standards and implemented stricter risk management measures.

DTSP Framework: Background and Changes

Background of tightened regulation

Singapore has attracted a large number of Web3 companies through flexible regulations in its early days. However, the issues related to the "shell company" model have gradually emerged, with some businesses registering entities in Singapore but actually operating overseas, exploiting regulatory loopholes in the Payment Services Act (PSA). This structure complicates the enforcement of anti-money laundering (AML) and counter-terrorism financing (CFT).

In 2022, the collapse of several high-profile companies highlighted these issues, resulting in significant losses and damaging Singapore's regulatory reputation. The MAS decided to take action and would no longer tolerate such regulatory loopholes.

Key Changes and Impacts of DTSP Regulations

The DTSP framework will be implemented on June 30, 2025, aiming to address the limitations of PSA. The new regulations require all digital asset companies operating from Singapore or conducting business in Singapore to obtain a license, regardless of where their users are located. MAS has clearly stated that licenses will not be issued to companies without a substantive business foundation.

Redefining the Regulatory Scope under the DTSP Framework

The DTSP framework expands the scope of regulation, requiring operators to have substantial operational capabilities, including AML, CFT, technical risk management, and internal controls. Singapore now requires businesses to bear responsibilities and disciplines above a certain threshold. Companies and individuals wishing to continue conducting cryptocurrency business in Singapore must clearly understand their activities, recognize the regulatory implications under the DTSP standards, and establish appropriate organizational structures and operational systems when necessary.

Summary

The DTSP regulations in Singapore mark a significant shift in the attitude of regulators towards the cryptocurrency industry. This change requires operators to fundamentally adjust their operations in Singapore. Companies that cannot meet the new regulatory 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 specific regulatory requirements. Companies should view migration as a strategic decision, taking into account regulatory intensity, regulatory methods, and operating costs.

Although Singapore's new regulatory framework may create entry barriers in the short term, it also indicates that the market will be restructured around operators with sufficient responsibility and transparency. In the future, whether Singapore can be recognized as a stable and reliable business environment will depend on the sustainability and consistency of these structural changes, as well as the effectiveness of interactions between institutions and the market.