Singapore’s Web3 Regulatory Shift: From Openness and Inclusiveness to Fine Governance

Over the past few years, Singapore has been one of the most popular locations for global virtual asset and Web3 businesses. With its liberal policies, stable legal system, and open innovation environment, the city-state has quickly become the “crypto capital of Asia,” attracting countless industry players.

However, times have changed. Today’s Singapore is gradually moving away from its early model of “encouraging innovation” to a more robust approach to “risk prevention”. In terms of policy evolution, some have even questioned whether Singapore is imposing severe restrictions on the Web3 industry. But in fact, this is more like the refined management stage after the completion of the initial “primitive accumulation”.

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I. Initial Stage: Openness and Inclusiveness to Promote Industry Growth

Singapore’s initial attitude was quite open-minded. After the introduction of the Payment Services Act in 2019, digital payment tokens gained a clear legal status, providing a clear licensing pathway for cryptocurrency exchanges and wallet services. Meanwhile, the Monetary Authority of Singapore actively encourages technological innovation, driving several exploratory projects for central bank digital currencies and tokenized assets, including “Project Ubin” and “Project Orchid.”

This stage can be understood as the “seizing the opportunity” period— as long as it does not touch the compliance bottom line, companies can boldly try various innovative models. For many startup teams, this is an extremely valuable market window.

2. Reflection after the Crisis: Strengthening Regulation is Urgent

As the industry rapidly expands, the hidden risks begin to emerge.

In 2022, Three Arrows Capital (3AC) “liquidated” in Singapore, followed by the much-watched collapse of FTX, which brought great pressure to Singapore’s financial regulators. In the world’s most compliance-sensitive financial sector, if an international financial center has a problem, it is not only the credibility of the company that is damaged, but also the country’s credibility is questioned.

In response to these challenges, Singapore regulators have taken swift action. On one hand, they have strengthened institutional oversight over crypto service providers, such as introducing the stricter Financial Services and Markets Act (FSM); on the other hand, they have also clearly restricted retail investor behavior, emphasizing that investments in crypto assets should not be as blind as buying lottery tickets.

3. Retail Investor Restrictions: Curbing Speculative Behavior

At the end of 2023, the regulatory guidelines released by MAS directly set barriers for retail investors investing in cryptocurrencies.

The new rules require that crypto service providers must not provide retail investors with any form of incentive, such as cashback, airdrops, or trading subsidies; It is forbidden to provide leveraged trading, credit card recharge and other functions that may magnify risks; It is even required to assess the user’s risk tolerance and set an investment cap based on their net worth.

In short, Singapore aims to attract rational investors rather than speculators seeking short-term profits.

4. Service Provider Cleanup: Compliance Becomes Key to Survival

By 2025, the regulatory trend will be even more pronounced. On May 30, the MAS issued a final policy guidance stipulating that all businesses that do not have a digital token service provider (DTSP) license must complete the “clearance” by June 30, 2025, if they still want to provide services to overseas customers. There is no transition period and no room for negotiation in this policy.

Currently, only a few leading companies have obtained regulatory approval, such as a certain trading platform, Circle, HashKey, and a certain trading platform in Singapore. About 24 other companies are in a regulatory exemption status, such as Cobo, Matrixport, Antalpha, etc. These companies have either passed strict anti-money laundering and risk assessments, or have maintained a high level of cooperation with regulatory authorities.

For other companies, they either seek other market opportunities or quickly adjust to comply with regulatory requirements.

5. Strengthening Fund Management: Enhanced Professional Requirements

Regulatory tightening affects not only retail investors and service providers but also imposes higher standards in the fund management sector.

As a fund hub for traditional finance in the Asia-Pacific region, Singapore is making efforts to integrate virtual assets into its formal fund management system.

According to MAS regulations, even if only serving “qualified investors”, cryptocurrency fund managers in Singapore must possess the appropriate qualifications. Risk hedging mechanisms, client asset identification, internal risk control processes, anti-money laundering reporting systems, and other factors have become essential requirements.

This means that the cryptocurrency fund model, which previously relied on simple team structures and conceptual documents, is no longer viable in Singapore.

Regulatory Upgrade: Elimination or Evolution?

In the face of this series of regulatory changes, many people lamented that “Singapore is no longer a Web3 paradise”. On the other hand, this is actually a natural evolution of regulation – from the initial “trial and error” to the later “normative order”, which is the stage that any emerging market must go through when it matures. Singapore may no longer welcome short-term speculative players, but it remains one of the most attractive markets in the world for teams with real technical capabilities and long-term development plans.

As Ho Hern Shin, the Vice President of MAS, said: “We welcome responsible innovation, but will not tolerate the abuse of trust.” In other words, if you wish to establish a long-term business in the Web3 space, Singapore’s doors are still open, but pure speculative behavior will no longer be welcomed.

However, there are also voices pointing out that the development of cryptocurrencies and even the entire Web3 industry is still in its infancy, and the future form has not yet been fully established. Imposing severe constraints on a growing industry too early can limit the potential for innovation and even stifle valuable growth opportunities altogether. Striking a balance between the pursuit of safety and the promotion of innovation is perhaps the real challenge for Singapore’s regulators.