Singapore's Web3 Mass Exodus: What Changes Lie Ahead?
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Singapore's Web3 Mass Exodus: What Changes Lie Ahead?
DTSP regulations reshape Singapore's Web3 industry.
Navigating Web3 tides with focused insightsAuthors: Aiden, Jay Jo
Translation: Baicai Blockchain
Executive Summary
Singapore has attracted numerous Web3 companies with its flexible regulatory environment, earning it the nickname "Asia's Delaware." However, a surge in shell companies and high-profile collapses such as Terraform Labs and 3AC have exposed regulatory gaps.
In 2025, the Monetary Authority of Singapore (MAS) will implement the Digital Token Services Provider (DTSP) framework, requiring all companies offering digital asset services in Singapore to obtain a license. Merely being registered in Singapore will no longer suffice for conducting digital asset business.
Singapore continues to support innovation, but regulatory scrutiny has significantly increased. The government now demands higher accountability and compliance. Web3 companies in Singapore must either build operational capacity or consider relocating to other jurisdictions.
1. Evolution of Singapore’s Regulatory Environment
For years, global businesses have referred to Singapore as “Asia’s Delaware” due to its clear regulations, low corporate tax rates, and fast registration processes. This foundation also applied to the Web3 industry. Singapore’s business-friendly ecosystem naturally became an ideal destination for Web3 firms. Recognizing early on the growth potential of cryptocurrency, MAS proactively established regulatory frameworks that allowed Web3 companies to operate within the existing system.
MAS introduced the Payment Services Act (PSA), bringing digital asset services under a defined regulatory regime, and launched a regulatory sandbox allowing companies to test new business models under specific conditions. These measures reduced uncertainty in the early market, positioning Singapore as a hub for Asia’s Web3 industry.
However, recent policy shifts indicate a change in direction. MAS is gradually moving away from its flexible approach, tightening regulatory standards and revising its frameworks. Data clearly reflects this shift: since 2021, fewer than 10% of over 500 license applications have been approved. This indicates that MAS has significantly raised its approval bar and adopted stricter risk management practices amid limited regulatory resources.
This report explores how these regulatory changes are reshaping the Web3 landscape in Singapore.
2. The DTSP Framework: Why Now, and What Has Changed?
2.1. Background Behind Regulatory Tightening
In the early days of the crypto industry, Singapore identified its potential and attracted many companies through flexible regulations and sandbox programs. As a result, numerous Web3 companies established their Asian headquarters in Singapore.
Yet, limitations of the existing system have become increasingly apparent. A key issue is the "shell company" model—entities registered in Singapore but operating primarily overseas, exploiting regulatory loopholes in the Payment Services Act (PSA). Under PSA, only companies serving Singaporean users were required to obtain licenses; some firms circumvented this by operating abroad. These companies leveraged Singapore’s institutional credibility while evading meaningful oversight.
MAS views such structures as major obstacles to effective anti-money laundering (AML) and counter-terrorist financing (CFT) enforcement. Although incorporated in Singapore, these entities conduct operations and manage fund flows entirely offshore, making effective supervision difficult. The Financial Action Task Force (FATF) refers to this as the "offshore Virtual Asset Service Provider (VASP)" model, warning that discrepancies between registration and operational locations create global regulatory gaps.
The 2022 collapses of Terraform Labs and Three Arrows Capital (3AC) turned these concerns into reality. Both firms had entities registered in Singapore but operated largely overseas. MAS was unable to effectively supervise or enforce regulations, resulting in billions of dollars in losses and damaging Singapore’s regulatory reputation. MAS has since decided it will no longer tolerate such regulatory arbitrage.
2.2. Key Changes and Impacts of the DTSP Regulations
The Monetary Authority of Singapore (MAS) will implement the new Digital Token Services Provider (DTSP) regulations starting June 30, 2025, under Part IX of the Financial Services and Markets Act (FSMA 2022). FSMA consolidates MAS’s previously fragmented regulatory powers into a comprehensive financial law designed to address emerging financial environments, including digital assets.
The new rules aim to overcome the limitations of the PSA. While PSA required licensing only for firms serving Singapore-based users—allowing some to avoid regulation by operating offshore—the DTSP framework directly targets such structural avoidance. Any digital asset firm using Singapore as its operational base or conducting business in Singapore must now obtain a license, regardless of where its customers are located. Even companies serving only overseas clients must comply if they operate in Singapore.
MAS has made it clear that licenses will not be granted to firms lacking substantive business presence. Companies failing to meet requirements by June 30, 2025, must cease operations immediately. This is not merely a temporary enforcement action—it signals Singapore’s long-term transformation into a trust-centered digital finance hub.
3. Redefining Regulatory Scope Under the DTSP Framework
The DTSP framework requires digital token service operators in Singapore to adhere to clearer regulatory expectations. MAS mandates that any entity deemed “based in Singapore” must obtain a license, irrespective of user location or organizational structure. Business models previously unregulated are now brought into scope.
Key examples include: companies registered in Singapore but operating entirely overseas; and firms registered overseas whose core functions (e.g., development, management, marketing) are conducted in Singapore. Even individual Singapore residents participating in projects on an ongoing commercial basis may fall under DTSP obligations, regardless of formal affiliation. MAS’s criteria are clear: Is the activity taking place in Singapore? Is it conducted commercially?
These changes not only expand regulatory reach but also require operators to establish substantive operations, including AML/CFT compliance, technology risk management, and internal controls. Operators must assess whether their activities in Singapore are regulated and whether they can sustain operations under the new framework.
The implementation of DTSP signals Singapore’s transformation—from a jurisdiction exploited for its regulatory reputation to one demanding real substance. Singapore now expects enterprises to meet higher thresholds of responsibility and discipline. Companies and individuals wishing to continue crypto-related operations in Singapore must clearly understand their activities, recognize the regulatory implications under DTSP standards, and establish appropriate organizational and operational structures when necessary.
4. Conclusion
Singapore’s DTSP regulations reflect a fundamental shift in regulators’ stance toward the crypto industry. Previously, MAS maintained a flexible policy to help new technologies and business models enter the market quickly. However, this regulatory overhaul is not simply about tightening rules—it imposes clear responsibilities on entities using Singapore as a genuine operational base. The framework shifts from an open experimental space to one supporting only those operators meeting strict regulatory standards.
This transformation means operators must fundamentally reassess their Singapore operations. Companies unable to meet the new regulatory standards face tough choices: restructure their operations or relocate their base. Jurisdictions like Hong Kong, Abu Dhabi, and Dubai are developing their own crypto regulatory frameworks in different ways, prompting some firms to consider them as alternative hubs.
However, these jurisdictions also require licensing for services targeting local users or operating within their borders, involving capital requirements, AML standards, and operational substance rules. Therefore, relocation should be treated as a strategic decision—not mere regulatory arbitrage—and must factor in regulatory rigor, approach, and operating costs.
Singapore’s new regulatory framework may create short-term entry barriers, but it also signals that the market will reconfigure around operators demonstrating sufficient responsibility and transparency. The effectiveness of this system depends on whether these structural changes prove sustainable and consistent. The evolving interaction between institutions and markets will ultimately determine whether Singapore is recognized as a stable and reliable business environment.
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