The Great Web3 Exodus from Singapore: What Changes Will the Future Bring

DTSP regulations reshape Singapore's Web3 industry.

Written by: Aiden, Jay Jo

Compiled by: Plain Language Blockchain

Summary

Singapore has attracted numerous Web3 companies with its flexible regulatory environment, earning it the nickname "the Delaware of Asia." However, the surge in shell companies and the collapse of high-profile firms like Terraform Labs and 3AC 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, as mere registration will no longer suffice to conduct digital asset business.

Singapore continues to support innovation, but regulatory intensity has significantly increased, with the government demanding higher accountability and compliance. Web3 companies in Singapore need to develop operational capabilities or consider relocating to other jurisdictions.

1. Changes in the Regulatory Environment in Singapore

For many years, global businesses have referred to Singapore as the "Delaware of Asia" because its clear regulations, low corporate tax rates, and fast registration processes attract companies from around the world. This foundation is equally applicable to the Web3 industry. Singapore's business-friendly environment naturally makes it an ideal destination for Web3 companies. The MAS recognized the growth potential of cryptocurrencies earlier and proactively developed a regulatory framework that provides space for Web3 companies to operate within the existing system.

MAS has issued the Payment Services Act (PSA), which incorporates digital asset services into a clear regulatory framework and introduces a regulatory sandbox that allows companies to experiment with new business models under specific conditions. These measures reduce uncertainty in the early market, making Singapore a hub for the Web3 industry in Asia.

However, there has been a change in policy direction in Singapore recently. The MAS has gradually abandoned its flexible regulatory approach, tightening regulatory standards and revising frameworks. Data clearly shows this shift: since 2021, the approval rate for over 500 license applications has been below 10%. This indicates that the MAS has significantly raised its approval standards and adopted stricter risk management measures under limited regulatory capacity.

This report explores how these regulatory changes are reshaping the Web3 landscape in Singapore.

2. DTSP Framework: Why Launch Now, What Has Changed?

2.1. Background of Regulatory Tightening

Singapore recognized the potential of the crypto industry early on and attracted numerous companies through flexible regulations and sandboxes, leading many Web3 companies to view Singapore as their base in Asia.

However, the limitations of the existing system are becoming apparent. A key issue is the "shell company" model, where a business registers an entity in Singapore but actually operates overseas, taking advantage of regulatory loopholes (PSA) the Payment Services Act. At the time, PSA only required a license from companies serving users in Singapore, and some companies circumvented this requirement by operating overseas. These companies take advantage of Singapore's institutional credibility while evading actual regulation.

MAS believes that this structure makes the enforcement of anti-money laundering (AML) and counter-terrorist financing (CFT) difficult. Although companies are registered in Singapore, their operations and capital flows are entirely overseas, making it challenging for regulatory agencies to implement effective oversight. The Financial Action Task Force (FATF) refers to this as an "offshore virtual asset service provider (VASP)" structure, warning that the inconsistency between the registration location and the operational location leads to global regulatory loopholes.

The collapse of Terraform Labs and Three Arrows Capital in 2022 turned these issues into reality. Both companies were registered in Singapore but operated overseas, making it difficult for MAS to effectively regulate or enforce, resulting in billions of dollars in losses and damaging Singapore's regulatory reputation. MAS has decided not to tolerate such regulatory loopholes any longer.

( 2.2. Key Changes and Impacts of DTSP Regulations

The Monetary Authority of Singapore )MAS### will implement new regulations for Digital Token Service Providers (DTSP) starting from June 30, 2025, under Part 9 of the Financial Services and Markets Act (FSMA 2022). The FSMA consolidates MAS's previously fragmented regulatory powers into a comprehensive financial legislation to address the new financial environment, including digital assets.

The new regulations aim to address the limitations of the PSA. The PSA only requires companies that provide services to Singapore users to obtain a license, and some companies have evaded regulation by operating overseas. The DTSP framework directly targets this structural avoidance behavior, requiring 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. Even companies that only serve overseas clients must comply if they operate in Singapore.

MAS has made it clear that it will not issue licenses to companies without substantial business foundations. Companies that do not meet the requirements by June 30, 2025, must cease operations immediately. This is not just a temporary enforcement action, but a signal of Singapore's long-term transition to a trust-centered digital financial hub.

3. Redefining the Regulatory Scope Under the DTSP Framework

The DTSP framework requires digital token service operators in Singapore to comply with more explicit regulatory requirements. MAS requires any business considered "based in Singapore" to obtain a license, regardless of the location of its users or organizational structure. Previously unregulated business types are now subject to regulation.

Key examples include: companies registered in Singapore but operating entirely overseas; as well as companies registered overseas but with core functions such as development, management, and marketing taking place in Singapore, (. Even if Singapore residents participate in projects in a continuous business manner, they may still be subject to DTSP requirements, regardless of whether they belong to a formal organization. The MAS's criteria are clear: Is the activity taking place in Singapore? Does it have a commercial nature?

These changes not only expand the scope of regulation but also require operators to have substantial operational capabilities, including Anti-Money Laundering )AML(, Counter Financing of Terrorism )CFT(, technology risk management, and internal controls. Operators need to assess whether their activities in Singapore are regulated and whether they can maintain business under the new framework.

The implementation of DTSP indicates that Singapore is transforming, no longer just a place that utilizes its regulatory reputation. Singapore now requires businesses to take on responsibilities and discipline above a certain threshold. Companies and individuals wishing to continue engaging in cryptocurrency business in Singapore must have a clear understanding of their activities, recognize the regulatory implications under the DTSP standards, and establish appropriate organizational structures and operational systems when necessary.

4. Summary

The DTSP regulations in Singapore indicate a shift in the stance of regulators towards the crypto industry. The MAS had previously maintained a flexible policy to help new technologies and business models enter the market quickly. However, this regulatory reform is not merely a tightening but imposes clear responsibilities on entities that have their actual business base in Singapore. The framework has shifted from an open experimental space to one that only supports operators compliant with regulatory standards.

This change means that operators must fundamentally adjust their operations in Singapore. Companies that cannot meet the new regulatory standards may face a difficult choice: adjust their operational framework or relocate their business base. Regions such as Hong Kong, Abu Dhabi, and Dubai are developing their crypto regulatory frameworks in different ways, and some companies may consider these areas as alternative bases.

However, these jurisdictions also require licenses for local users or services operating within their borders, involving capital requirements, anti-money laundering standards, and substantive operational rules. Therefore, companies should view migration as a strategic decision rather than a simple regulatory evasion, taking into account the intensity of regulation, regulatory approaches, and operational costs.

Singapore's new regulatory framework may create entry barriers in the short term, but it also indicates that the market will be restructured around operators with sufficient responsibility and transparency. The effectiveness of this system depends on whether these structural changes are sustainable and consistent. The future interaction between institutions and the market will determine whether Singapore can be recognized as a stable and reliable business environment.