From "Innovation Paradise" to "Regulatory Guidance": Singapore's Web3 Regulatory Journey

In recent years, Singapore has been regarded as one of the preferred hubs for global virtual currency and Web3 enterprises. Benefiting from its open innovation environment, stable legal system, and relatively relaxed policies, this city-state has attracted numerous participants from the crypto industry and has been hailed as the "Crypto Capital of Asia."

However, over time, Singapore's regulatory strategy is undergoing a transformation. It is gradually shifting from an early "encouraging innovation" model to a more prudent approach that emphasizes "risk prevention and control." This shift has sparked discussions in the industry about whether Singapore is tightening its Web3 policies.

In fact, this change is more like Singapore starting to implement more refined industry governance after completing the initial "primitive accumulation" phase. Let us review the evolution of Web3 regulation in Singapore:

Initial Stage: Open Innovation, Gaining Momentum

In 2019, Singapore launched the Payment Services Act (PSA), which provided a clear legal framework for digital payment token (DPT) services. This initiative pointed out the compliance path for businesses such as cryptocurrency exchanges and wallet services. At the same time, the Monetary Authority of Singapore (MAS) actively promoted technological innovation, initiating several experimental projects to explore central bank digital currencies and tokenized assets.

This stage can be seen as a period of "seizing the opportunity." As long as they do not cross the compliance bottom line, companies can boldly attempt innovation. For many startup teams, this is undoubtedly a rare development opportunity.

Risk Manifestation: Regulatory Upgrade

With the rapid development of the industry, some potential risks have begun to surface. In 2022, Three Arrows Capital (3AC) collapsed in Singapore, followed by the high-profile collapse of FTX. These events served as a wake-up call for Singapore's financial regulators. As a major global financial center, Singapore has realized that maintaining national credibility is more important than merely supporting corporate development.

To address these challenges, Singapore's regulatory authorities have taken a series of measures. On one hand, they have strengthened the regulation of cryptocurrency service providers by introducing the more stringent Financial Services and Markets Act (FSM); on the other hand, they have also set clear restrictions on retail investor behavior, emphasizing the importance of rational investing.

Retail Investors: From "Freedom" to "Rationality"

At the end of 2023, the regulatory guidelines released by MAS imposed multiple restrictions on retail investors. The new regulations require cryptocurrency service providers not to offer any form of incentives to retail investors, such as cashbacks, airdrops, or trading subsidies; at the same time, it prohibits the provision of features that may amplify risks, such as leverage and credit card deposits. In addition, service providers must assess users' risk tolerance and set investment limits based on their net asset value.

These measures clearly convey Singapore's regulatory intention: to nurture rational investors rather than encourage speculative behavior.

Service Provider: Compliance Upgrade

By 2025, this trend will become more pronounced. In the final policy guidelines issued by MAS on May 30, it is stipulated that all enterprises that have not obtained a Digital Token Service Provider (DTSP) license must complete compliance upgrades by June 30, 2025, if they wish to continue providing services to overseas clients. This policy does not allow for a transition period or room for negotiation.

Currently, only a few leading companies have been approved, such as Coinbase, Circle, HashKey, and OKX SG. There are also some companies that are in an exemption status, such as Cobo, Matrixport, and Antalpha. These companies have either passed strict anti-money laundering and risk assessments or maintain a high level of cooperation with regulatory authorities.

For other companies, they can either choose to shift to other markets or quickly complete compliance upgrades.

Fund Management: Professional Requirements Enhancement

Singapore's regulatory upgrade involves not only retail investors and service providers but also extends to the fund management sector. As a traditional fund hub in the Asia-Pacific region, Singapore is striving to incorporate virtual assets into formal fund management processes.

According to MAS regulations, institutions wishing to establish a cryptocurrency fund in Singapore must possess the necessary qualifications, even if they only serve "qualified investors." This includes comprehensive requirements such as risk hedging capabilities, client asset identification, the establishment of internal risk control processes, and even anti-money laundering reporting mechanisms.

This means that the era of setting up funds quickly relying on simple models has ended in Singapore. The future of cryptocurrency fund management will be more professional and standardized.

Conclusion: Regulatory Upgrade or Industry Evolution?

In the face of this wave of regulatory upgrades, some people believe that Singapore is no longer an ideal place for Web3. However, from another perspective, this is actually a natural evolution of regulation – from "allowing trial and error" to "regulating order" is an inevitable path for any emerging market to mature.

Singapore today, although no longer welcoming purely speculative behavior, remains one of the most attractive markets in the world for teams that truly possess technical strength and long-term development plans.

As the Vice President of MAS stated: "We welcome responsible innovation, but will not tolerate abuses of trust." In other words, Singapore still welcomes companies that wish to make substantial contributions in the Web3 space, but short-term speculative behavior will no longer be tolerated.

However, there are also views that the Web3 industry is still in its early development stage, and imposing strict regulations too early may stifle innovation. Striking a balance between encouraging innovation and mitigating risks will be an ongoing challenge for Singapore and other regulatory bodies.