New Regulatory Landscape for Web3 in Singapore: Transformations and Challenges under the DTSP Framework

Overview

Singapore has attracted numerous Web3 companies due to its flexible regulatory environment, earning the title of "Asia's Delaware." However, the surge in shell companies and high-profile corporate bankruptcies have exposed regulatory loopholes. In 2025, the Monetary Authority of Singapore (MAS) will implement the Digital Token Service Provider (DTSP) framework, 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 greater accountability and compliance requirements on Web3 companies.

The evolution of the regulatory environment

Singapore has long attracted global enterprises with its clear regulations, low tax rates, and convenient registration processes, advantages that also apply to the Web3 industry. The MAS recognized the potential of cryptocurrency early on and developed a corresponding regulatory framework that provides room for Web3 companies to grow. The enactment of the Payment Services Act (PSA) and the introduction of regulatory sandboxes have provided clear regulatory guidance for digital asset services, reducing market uncertainty.

However, there has been a change in policy direction in Singapore recently. The MAS has gradually tightened regulatory standards and raised the threshold for license approvals. Since 2021, the approval rate for over 500 license applications has been less than 10%, reflecting the regulatory authority's stricter risk management approach.

DTSP Framework: Background and Transformation

Reasons for Regulatory Tightening

The early flexible regulatory environment attracted a large number of Web3 companies, but also exposed issues such as "shell companies." Some businesses registered entities in Singapore while actually operating overseas, exploiting regulatory loopholes in the PSA to evade oversight. This practice has made law enforcement against money laundering ( AML ) and counter-terrorism financing ( CFT ) difficult, and has been warned by the Financial Action Task Force ( FATF ) that it could lead to global regulatory loopholes.

In 2022, the collapse of Terraform Labs and Three Arrows Capital ( 3AC ) further highlighted these issues, resulting in huge losses and damage to Singapore's regulatory reputation. This prompted MAS to decide to strengthen regulatory measures.

Main Changes in DTSP Regulations

The DTSP framework will be implemented from June 30, 2025, as part of the Financial Services and Markets Act ( FSMA 2022). The new regulations require all digital asset companies that are based in Singapore or conduct business in Singapore to obtain a license, regardless of where their users are located. This directly addresses the limitations of the previous PSA and expands the scope of regulation.

MAS has clearly stated that it will not issue licenses to companies lacking a substantive business basis. Companies that fail to meet the requirements by the deadline must cease operations. This is not just an enforcement action, but also a signal of Singapore's transition to a trust-centered digital financial hub.

Regulatory scope under the DTSP framework

Under the new framework, the scope of regulation has significantly expanded. The following types of enterprises and activities may be subject to regulation:

1. Companies registered in Singapore but operating entirely overseas.
2. Companies registered overseas but with core functions in Singapore
3. Projects in which Singapore residents participate in a continuous business manner.

The MAS's criteria focus on whether the activity takes place in Singapore and whether it has a commercial nature. This requires operators to have substantive operational capabilities, including aspects such as AML, CFT, technology risk management, and internal controls.

Impact and Outlook

The implementation of the DTSP regulations marks a significant shift in Singapore's regulatory stance, moving from encouraging rapid innovation to demanding higher levels of accountability and discipline. This change will force many companies to reassess their operational strategies in Singapore. Businesses that cannot meet the new standards may need to consider adjusting their operational frameworks or migrating to other jurisdictions such as Hong Kong, Abu Dhabi, or Dubai.

However, migration is not a simple regulatory avoidance, but should be seen as a strategic decision. Other jurisdictions also have their regulatory requirements, and companies need to comprehensively consider the intensity of regulation, methods, and operational costs.

Although the regulatory changes in Singapore may create entry barriers in the short term, in the long run, they will help build a more robust and transparent market environment. In the future, whether Singapore can maintain its position as a Web3 hub will depend on the effectiveness of the implementation of these structural changes and the market's adaptability.