Singapore's Web3 Regulation Tightens: Industry Transformation under the DTSP Framework

Singapore is dubbed "the Delaware of Asia" due to its flexible regulatory environment, attracting a large number of Web3 companies. However, recent regulatory policies have undergone significant changes aimed at addressing the surge of shell companies and high-profile corporate bankruptcies.

In 2025, the Monetary Authority of Singapore ( MAS ) will implement the Digital Token Service Provider ( DTSP ) framework. This framework requires all companies providing digital asset services in Singapore to obtain a license, regardless of where their customers are located. This change will significantly impact the industry landscape.

Evolution of the Regulatory Environment

Singapore has attracted global companies, including Web3 firms, early on through clear regulations, low tax rates, and a fast registration process. The MAS recognizes the potential of cryptocurrencies and has established a regulatory framework, including the Payment Services Act (PSA), to provide space for industry development.

However, the recent policy direction has changed. MAS has gradually tightened regulatory standards, and the approval rate has significantly decreased, indicating a stricter risk management attitude.

Background and Changes of the DTSP Framework

The existing regulatory system has exposed some issues, particularly the "shell company" model. Some businesses are registered in Singapore but operate overseas, circumventing the regulatory requirements of the PSA. This practice not only impacts the effectiveness of regulation but also harms Singapore's reputation.

The DTSP framework aims to address these issues. The new regulations require all digital asset companies based in Singapore or operating in Singapore to obtain a license, regardless of the location of their users. MAS emphasizes that licenses will not be granted to companies lacking substantive business.

Redefinition of Regulatory Scope

The DTSP framework expands the regulatory scope to include previously unregulated types of business. For example, companies registered in Singapore but operating entirely overseas, or overseas registered companies with core functions in Singapore, may need to comply with the new regulations.

The new framework requires operators to possess substantial capabilities, including anti-money laundering, counter-terrorism financing, technological risk management, and internal controls. Companies need to assess whether their activities are regulated and adjust their organizational structure and operational systems when necessary.

Impact and Outlook

The DTSP regulations indicate that Singapore is shifting from an open experimental space to a more stringent regulatory environment. This transition requires companies to fundamentally adjust their operations, which may lead some to consider relocating to other jurisdictions.

However, other regions such as Hong Kong, Abu Dhabi, and Dubai are also developing their own regulatory frameworks. Companies need to comprehensively assess the regulatory intensity, methods, and operational costs in different locations when considering migration.

Singapore's regulatory reforms may increase entry barriers in the short term, but they are also expected to reshape the market and promote more responsible and transparent operating models. In the future, whether Singapore can maintain its position as a stable and reliable business environment will depend on the effectiveness of these structural changes and the interaction between institutions and the market.