New Era of Cryptocurrency Regulation in Singapore: DTSP Framework Reshaping the Web3 Landscape

Singapore has long attracted numerous Web3 companies with its flexible regulatory environment and business-friendly policies, earning it the title of "the Delaware of Asia." However, the country's regulatory stance has recently undergone a significant shift, indicating a major adjustment in the Web3 industry landscape.

Background of Regulatory Tightening

In the early days, the Monetary Authority of Singapore (MAS) provided a clear regulatory framework for digital asset services through measures such as the Payment Services Act (PSA), while also launching a regulatory sandbox to encourage innovation. These initiatives significantly reduced market uncertainty, making Singapore a hub for the Web3 industry in Asia.

However, with the development of the industry, the limitations of the existing regulatory system are gradually becoming apparent. The "shell company" model has become a major problem, where companies register entities in Singapore but operate overseas, thereby evading the regulatory requirements of the PSA. This structure makes enforcement of anti-money laundering ( AML ) and counter-terrorism financing ( CFT ) difficult.

In 2022, the collapse of Terraform Labs and Three Arrows Capital(3AC) further exposed these issues. Although both companies were registered in Singapore, they operated overseas, making it difficult for the MAS to effectively regulate them, resulting in significant losses and damage to reputation.

DTSP Framework: A New Direction in Regulation

To address these challenges, 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 (FSMA 2022), aimed at comprehensively regulating the digital asset industry.

The core changes of the DTSP framework include:

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

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

3. More stringent compliance standards: including anti-money laundering, counter-terrorism financing, technology risk management, and internal controls.

Impact on the Web3 Industry

The implementation of the DTSP framework means that Singapore is shifting from a flexible regulatory environment to stricter regulatory standards. This transition will have a profound impact on the Web3 industry:

1. Operational Adjustment: Companies need to assess whether their activities in Singapore are regulated and adjust their organizational structure and operational system as necessary.

2. Market Reconstruction: The industry may reorganize around operators with sufficient responsibility and transparency.

3. Possible migration: Companies that cannot meet the new standards may consider relocating their business to other jurisdictions, such as Hong Kong, Abu Dhabi, or Dubai.

However, it is worth noting that other regions are also strengthening their regulation of the encryption industry. Companies should consider this as a strategic decision when contemplating migration, taking into account the intensity, methods of regulation, and operational costs.

Outlook

Singapore's regulatory shift reflects the changing global trends in encryption regulation. While it may lead to some companies exiting in the short term, in the long run, this framework aims to establish a more stable and reliable digital asset ecosystem.

In the future, whether Singapore can maintain its status as the Web3 hub of Asia will depend on the effectiveness of the implementation of the DTSP framework and the industry's adaptability. In any case, this regulatory shift marks the entry of Singapore's Web3 industry into a new stage of development.