Singapore releases new crypto rules, Web3 draws a compliance "life and death line"

With the strong support of the United States, the world seems to be relaxing regulation on the crypto market, but there is one country that is doing the opposite.

On May 30, the Monetary Authority of Singapore (MAS) issued the final policy guidelines for digital token service providers (DTSP), and announced that it would formally implement the new regulations for digital token service providers (DTSP) on June 30. According to the new regulations, all crypto service providers registered or operating in Singapore must stop providing services to overseas customers before June 30, 2025 if they have not obtained a DTSP license.

This move caught the crypto market off guard, local practitioners cried out in grief, and the market also heard the slogan of Singapore's Web3 retreat. Is it a retreat or a defense? Is it planned or radical dictatorship? The sudden change in the regulatory situation has disrupted the market. The call for compliance is being sounded around the world, and the industry is inevitably drifting with the tide.

01 Relying on regulatory advantages, Singapore has become a hotbed for Web3 development

Time goes back4 years ago, when China's encryption industry was undergoing a major cleanup, Hong Kong had not yet issued a virtual asset declaration, and the sovereignty of the Western encryption world was rising. Chinese Web3 entrepreneurs all chose Singapore as their next safe place to settle down.

The answer to choosing Singapore is also very simple. Singapore is the best springboard for the Western market. It not only has the advantages of a developed economy and a stable political situation, but also has a more suitable cultural circle for the Chinese. Against this background, talents, projects, derivative investments and service agencies have gathered, and Singapore has become a hot spot for Chinese Web3 investment. At that time, more than 47 cryptocurrency exchanges were located in Singapore. Well-known exchanges such as Coinbase, Binance, and FTX all used Singapore as their headquarters or R&D center in the Asia-Pacific region. The bigwigs also used Singapore as a safe haven for a time. Zhao Changpeng once had a record of living in Singapore for a long time, and Wu Jihan is already a permanent resident of Singapore. Of course, the core of all this is inseparable from Singapore's own open policies. From the perspective of policies and regulations, in 2019, Singapore has launched the Payment Services Act, which clarified the license for digital tokens and required local companies that provide services such as crypto exchange to apply for licenses, depending on the nature and scope of the services, to apply for "currency exchange" licenses, "standard payment institution" licenses, and major payment institution licenses. In 2020, Singapore passed the "Crypto Offering Guidelines" and proposed the "Comprehensive Financial Industry Bill", which basically laid the foundation for clear licenses and responsibilities for cryptocurrencies. Looking at the global crypto market at that time, my country has already made clear the ban, US regulators are caught in a battle for dominance, and it is difficult for European countries to unify their systems. Singapore is the first one to truly create a relatively relaxed and clear policy regulatory environment, and there are exemption regulations that temporarily allow the provision of specific payment services. And it is such Singapore that issued the final policy guidelines for digital token service providers (DTSP) on May 30, and then issued the final response document to the regulatory consultation on digital token service providers (DTSP) under Part 9 of the Financial Services and Markets Act 2022, which finally clarified that no license means no service, and no transition period was given, which made all practitioners panic.

02 Cliff-like regulation? Singapore introduces the strictest new regulations

First of all, it should be made clear that the "big retreat" and "cliff-like regulation" circulating in the market are exaggerated. Singapore's regulatory signs in the encryption field have long been apparent. In 2022, Singapore's MAS introduced the Financial Services and Markets Act, Part 9 of which specifically introduced a licensing system for digital token service providers, or DTSPs, which is the first time this system has appeared in Singapore legislation. In June, Singapore's head of fintech policy said that Singapore would take "brutal and ruthless harsh measures" against bad behavior in the cryptocurrency industry.

FTX at the end of 2022 was a key turning point. The collapse of FTX brought out the mud and nailed a series of investment institutions to the pillar of shame, one of which was Singapore's sovereign fund, Temasek Investment Company. Because of FTX, Temasek was forced to write off its $275 million investment. After this incident, the Singapore government made it clear that its reputation was damaged and even punished the investment team and senior management at the time with salary cuts.

In May 2023, the Financial Services and Markets (Amendment) Act was passed, strengthening the sharing of customer information among financial institutions to combat money laundering and terrorist financing supervision, and in August of the same year, stablecoins were included in the framework.

In 2024, MAS launched a consultation document on the regulatory approach, regulations, notices and guidelines for digital tokens in response to this law. The wording in the document is quite interesting. "Due to the Internet-based and cross-border nature of digital token services, digital token service providers (DTSPs) are more vulnerable to money laundering/terrorist financing (ML/TF) risks... The main risk posed by DTSPs to Singapore will be reputational risk, that is, if they are involved in or abused for illegal purposes, they may damage Singapore's reputation."

Finally, on June 30 this year, the new regulations for digital token service providers (DTSPs) were officially implemented. Looking back at this regulatory process, in fact, from proposal to implementation, there has been a three-year preparation period, during which the government also has clear progressive signals, and there is obviously no cliff-like regulation.

From a global perspective, the licensing system is the core of crypto regulation, which is the case in the United States, Hong Kong, and Europe. Singapore's previous payment bill also used licenses as a handle to control the main body. As for why a small license can cause such a stir this time, it has to go back to regulatory arbitrage.

The crypto industry is a global business, but the regulatory system is usually territorial supervision, which creates the possibility of arbitrage. Obtaining a license in a regulatory depression and then conducting business globally has basically become an industry consensus. In Singapore's previous regulatory laws, although there were strict requirements for conducting business locally, they were very relaxed for overseas business, that is, companies registered in Singapore could freely provide services to overseas customers, which is undoubtedly a natural fit with the crypto business. It is in this context that many exchanges have chosen to flock to Singapore.

However, this kind of arbitrage will be officially terminated in this new regulation. From the specific content of DTSP, the supervision can be described as strict. First, the subject is clear and covers a wide range, that is, as long as individuals and enterprises have business premises in Singapore to engage in business, regardless of the location of the operation, as long as they involve digital token-related business, they must obtain a DTSP license; secondly, the definition of business premises is very broad. The official clearly pointed out that "business premises" can be any place used to conduct business, even temporary or mobile places such as roadside stalls. This point is completely a special regulation for the encryption industry, especially for remote office and home office personnel and enterprises; the regulated services cover almost the entire industry chain. In addition to technical consulting and marketing promotion, from token issuance, custody, brokerage, transaction matching, transfer payment, verification governance and even custody technology development, they will be included in the license business, and the supervision has essentially achieved no loopholes.

In addition to the content of the license regulations, the license entry threshold is also very high. The supervisory authorityMAS has clearly stated that it will only issue DTSP licenses in "extremely limited circumstances", requiring not only that the applicant's business model is reasonable, but also that the operation method will not cause regulatory disputes, that is, it is necessary to obtain regulatory approval in the place of operation, and even has requirements for organizational structure, governance framework, and capital adequacy. In fact, the strictness of the issuance of licenses can be seen from the current number of licenses issued. In the Singapore fever in 2021, more than 500 institutions submitted license applications to Singapore, but four years have passed. As of now, the official website of Singapore MAS shows that only 33 companies including BITGO, CIRCLE, COINBASE, GSR, Hashkey, OKX SG, etc. have obtained DTSP licenses, and the application approval rate is less than 10%. It is worth noting that there is a certain exemption space in the licensing system. Enterprises that have obtained licenses in the framework of Singapore's Securities and Futures Act, Financial Advisors Act and Payment Services Act do not need to apply for DTSP again, but only need to implement the audit, risk management and other requirements required by the new regulations. This is more friendly to companies that have applied for licenses in the relatively relaxed stage before. According to the official website, 24 companies including COBO, ANTALPHA, CEFFU, MATRIXPORT, etc. are all on the exemption list. On the other hand, if an individual only works remotely as an employee, signs a contract with a Singaporean overseas registered entity, and only serves overseas customers, there is no need to apply for a license, but if he participates in business in Singapore as an individual, it will be included in the regulations.

In short, if entities that have not applied for a license and are within the scope of supervision do not arrange the process as soon as possible, both individuals and companies will face the end of being cleared before June 30, and from the above, it can be seen that this almost includes the entire industry chain. Especially for start-up projects, the minimum paid-in capital of 250,000 Singapore dollars and the annual fee of licensed institutions are 10,000 Singapore dollars. The high cost can only bring another large-scale migration to start-up projects. From the current point of view, not only individual practitioners have plans to leave Singapore, but even some crypto exchanges have plans to move away. "Compared with other regions, Singapore's cost is not advantageous. In the context of tightening compliance, some exchanges may move to Hong Kong for market considerations. Individual practitioners will have more choices. In addition to other Southeast Asian countries with lower costs, Dubai and Japan are also popular destinations. Even without new regulations, the number of practitioners leaving Singapore has been increasing in recent years." An exchange encryption practitioner working in Singapore said.

In response to Singapore's new regulations, Hong Kong has also launched a declaration to attract talent. A few days ago, Hong Kong Legislative Council member Wu Jiezhuang posted on social media that "Since the release of the Virtual Asset Declaration in 2022, Hong Kong has actively welcomed the industry to develop in Hong Kong. According to informal statistics, there are thousands of Web3 companies in Hong Kong. If you are currently engaged in a related industry in Singapore and are interested in moving your headquarters and personnel to Hong Kong, I am willing to provide assistance and welcome you to develop in Hong Kong!" It can be seen that although it seems to be a new regulation, in the long run, it will also have a far-reaching impact on the landscape of the global encryption industry.

03 Small investors finally retreat, and large institutions come to the fore

From a policy perspective, Singapore's move is very resolute. It not only faces the loss of projects that will be caused by the strict system, but also clearly expresses the government's zero-tolerance regulatory attitude towards arbitrage loopholes, and also rings the alarm bell for the development of Singapore's local

Web3 industry. The easing is gone forever, and tightening is the kingly way. Through high compliance costs, small and gray projects are completely reshuffled, and large enterprises with strong backgrounds, strong strength and sufficient capital are clearly encouraged to settle in. The healthy and sustainable industry is the starting point of Singapore's policy.

And from the essence of the matter, why is Singapore so determined to increase supervision? In addition to the spirit of rule of law originating from the local area, the key is that the industry's benefits cannot offset the negative externalities. From the perspective of the country, the crypto industry seems to be growing, but due to its unique decentralized nature and the development of global business, the tax direction is significantly lower than that of the same industry. But at the same time, the electronic fraud and gray production brought by the crypto industry continue to breed. According to data issued by the Singapore Police Force, cryptocurrency fraud has become a high-incidence incident in Singapore's fraud cases, rising sharply from about 6.8% in 2023 to about 24.3% in 2024, and the situation is becoming severe. It is worth mentioning that cryptocurrency also played an important role in the previous 10 billion money laundering case in Singapore. Low taxes, many crimes, and the simultaneous squeezing of local residents' production and living resources to cause internal conflicts, in the face of this situation, Singapore, which has always adhered to strict governance, has issued regulatory policies at this time, and there is reason to follow.

In fact, this is also the reason why my country considers its regulatory strategy. Compared with Singapore, my country has a large population base, higher regulatory complexity, and more alarming policy arbitrage. In the end, my country chose a tougher "one-size-fits-all" governance, while Singapore retained some markets to strike a balance between regulation and innovation.

From a glimpse of the leopard, Singapore's transformation can also echo the transformation of global regulation. For the crypto industry, the trend of compliance is unstoppable, and compliance has changed from a multiple-choice question to a must-answer question. In the past, the development strategy of global crypto companies was to find regulatory depressions, and the grayer the more concentrated, but now, under the premise that the regulatory mechanism has been clarified in the United States, Europe, Hong Kong, Singapore and other places, only by embracing compliance and moving towards the sun can we truly achieve long-term development. Compliance also determines the background of industrial development to a certain extent. The bargaining and competitiveness of large institutions will be much higher than that of other enterprises, and the opportunities of start-ups will also be greatly squeezed. From the mainland to Hong Kong, and from Hong Kong to Singapore, now setting sail again, for start-ups, it is not terrible to live in the grass. Finding the grass that best fits their own business may be the issue that must be solved in the development process.