With strong support from the United States, the world seems to be relaxing regulations on the encryption market, but there is one country that is going against the tide.

On May 30, the Monetary Authority of Singapore (MAS) released the final policy guidelines for Digital Token Service Providers (DTSP), announcing that the new regulations for Digital Token Service Providers (DTSP) will officially take effect on June 30. According to the new regulations, all encryption service providers registered or operating in Singapore must cease providing services to overseas clients by June 30, 2025, if they have not obtained the DTSP license.

This move caught the encryption market off guard, and local practitioners lamented the situation, while the slogan of a major Web3 retreat from Singapore echoed in the market. Is it a retreat or a defense? Is it a planned action or an aggressive dictatorship? The sudden change in the regulatory landscape is disrupting the market, the Compliance trumpet is sounding globally, and the industry is inevitably being swept along with the tide.

01 Leveraging regulatory advantages, Singapore has become a hotbed for Web3 development.

Four years ago, during the large-scale elimination period of the Chinese encryption industry, Hong Kong had not yet released its virtual asset declaration, and the sovereign status of the Western encryption world was gradually rising. Chinese Web3 entrepreneurs unanimously chose Singapore as their next safe haven.

Choosing Singapore as an answer is also very simple. Singapore is known as the best springboard to the Western market, not only boasting the advantages of a developed economy and political stability, but also having a cultural environment that is more compatible for Chinese people. Against this backdrop, talents, projects, derivative investments, and service agencies have gathered, making Singapore a hotbed for Chinese Web3 investments. At that time, more than 47 cryptocurrency exchanges were located in Singapore, with well-known exchanges like Coinbase, Binance, and FTX establishing Singapore as their headquarters or R&D center for the Asia-Pacific region. Big names have also once regarded Singapore as a safe haven; Zhao Changpeng has a record of long-term residence in Singapore, and Wu Jihan is already a permanent resident there.

Of course, at the core of all this is Singapore’s open policy. From the perspective of policies and regulations, Singapore launched the Payment Services Act in 2019, which clarified the licensing of digital tokens and required local companies providing encryption exchange services to apply for licenses based on the nature and scope of services, including “currency exchange” licenses, “standard payment institution” licenses, and major payment institution licenses. In 2020, Singapore passed the Crypto Sale Guidelines and proposed the Financial Sector Development Bill, which basically laid the foundation for clear licensing and responsibilities in encryption. Looking at the global encryption market at that time, our country had explicitly banned it, U.S. regulators were caught in a struggle for dominance, and European countries struggled to unify their systems. Singapore was truly the first to create a relatively relaxed and clear policy regulatory environment, with exemption regulations temporarily allowing the provision of specific payment services.

In Singapore, on May 30, the final policy guidelines for Digital Token Service Providers (DTSP) were released, followed by the final response document to the regulatory consultation for Digital Token Service Providers (DTSP) under Section 9 of the Financial Services and Markets Bill 2022. It was ultimately clarified that no license means no service, and no grace period was provided, leaving all practitioners in a state of panic.

02 Cliff-style Regulation? Singapore Introduces Strictest New Rules

Firstly, it is important to clarify that the “great retreat” and “cliff-like regulation” circulating in the market are indeed exaggerated. The regulatory signs for the encryption sector in Singapore have long been evident. In 2022, Singapore’s MAS introduced the “Financial Services and Markets Act,” in which Part 9 specifically introduced a licensing system for Digital Token Service Providers, or DTSPs; this was the first time this system appeared in Singaporean legislation. In June, the head of fintech policy in Singapore stated that Singapore will take “brutal and ruthless strict measures” against bad behavior in the cryptocurrency industry.

The end of 2022 marked a key turning point for FTX. The collapse of FTX pulled a series of investment institutions into disgrace, one of which was the Singapore sovereign fund - Temasek Holdings. Due to FTX, Temasek was forced to write off an investment of $275 million. After this incident, the Singapore government clearly stated that its reputation was damaged and even imposed salary cuts on the investment team and senior management at that time.

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 regulations, and in August of the same year, stablecoins were included in the framework.

In 2024, MAS launched a consultation document regarding regulatory approaches, regulations, notices, and guidelines for digital tokens under this law. The terminology in the document is quite intriguing: “Due to the internet-based and cross-border characteristics of digital token services, digital token service providers (DTSPs) are more likely to face money laundering/terrorist financing (ML/TF) risks… The primary risk that DTSPs pose to Singapore will be reputational risk, meaning that if they are involved in or misused for illegal purposes, it could harm Singapore’s reputation.”

On June 30 of this year, the new regulations for Digital Token Service Providers (DTSP) officially came into effect. Looking back at this regulatory process, it actually has a preparation period of up to 3 years from proposal to execution, during which the government has also provided clear progressive signals, indicating that there is clearly no cliff-like regulatory situation.

From a global perspective, licensing systems are at the core of encryption regulation, as seen in the United States, Hong Kong, and Europe. Singapore’s previous payment legislation also used licensing as a means to regulate entities. As for why a small license could cause such a huge uproar this time, it must be traced back to regulatory arbitrage.

The encryption industry operates on a global scale, but regulatory systems are typically territorial, which creates the possibility of arbitrage—obtaining licenses in regulatory loopholes and then conducting business globally has essentially become a consensus in the industry. In Singapore’s previous regulatory framework, although there were strict requirements for local operations, the regulations for overseas business were very lenient, allowing companies registered in Singapore to freely provide services to overseas clients, which undoubtedly aligns well with encryption operations. It is precisely against this backdrop that numerous exchanges have chosen to flock to Singapore.

However, this type of arbitrage will officially be declared terminated under the new regulations. From the specifics of the DTSP, the regulation can be described as stringent. First, the entities are clearly defined and cover a wide range, meaning that any individual or company conducting business in Singapore, regardless of the location of operation, must obtain a DTSP license as long as they are involved in digital token-related activities. Secondly, the definition of a business location is very broad; the authorities have explicitly stated that a “business location” can be any place used to conduct business, including temporary or mobile locations such as street stalls. This point is specifically targeting the encryption industry, especially concerning remote work and individuals or companies working from home. The regulated services cover almost the entire industry chain, including token issuance, custody, brokerage, trading matching, transfer payments, verification governance, and even custody technology development, all of which will be included in the licensed activities, essentially ensuring that no one slips through the regulatory net.

In addition to the content related to licensing regulations, the threshold for obtaining a license is extremely high. The regulatory authority MAS has clearly stated that it will only issue DTSP licenses in “very limited circumstances.” Not only must the applicant’s business model be reasonable, but the operating methods must also not lead to regulatory disputes, which means obtaining regulatory approval in the place of operation is also required, and there are even requirements for organizational structure, governance framework, and capital adequacy must be taken into consideration. In fact, the severity of the licensing issuance can be gleaned from the current number of licenses issued. During the Singapore boom in 2021, over 500 institutions submitted license applications to Singapore, but time has flown for 4 years, and as of now, the MAS website shows that only 33 companies, including BITGO, CIRCLE, COINBASE, GSR, Hashkey, and OKX SG, have obtained DTSP licenses, with a pass rate of less than 10%.

It is worth noting that there is some room for exemptions in the licensing system. Companies that have already obtained licenses under the Singapore Securities and Futures Act, Financial Advisors Act, and Payment Services Act framework do not need to reapply for a DTSP; they only need to meet the audit, risk management, and other requirements specified by the new regulations. This is relatively friendly for companies that applied for licenses during the previously more lenient phase. According to the official website, 24 companies including COBO, ANTALPHA, CEFFU, MATRIXPORT, etc. are on the exemption list. On the other hand, if an individual is only working remotely as an employee and is contracted with an overseas entity registered in Singapore, serving only overseas clients, there is no need to apply for a license. However, if the individual participates in business locally in Singapore, they will be subject to the regulations.

In summary, entities that have neither applied for a license nor fall within the regulatory scope will face the outcome of being expelled before June 30 if they do not promptly arrange processes, and it can be seen from the above that this almost includes the entire industry chain. Especially for startup projects, the minimum paid-up capital is 250,000 SGD, and the annual fee for licensed institutions reaches 10,000 SGD. The high costs bring only another great migration for startup projects. Currently, not only individual practitioners are planning to leave Singapore, but some cryptocurrency exchanges also have intentions to relocate. “Compared to other regions, Singapore’s costs are not competitive. In the context of tightening compliance, some exchanges may move to Hong Kong for market considerations, while individual practitioners will have more choices. Besides 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,” said a cryptocurrency practitioner working at an exchange in Singapore.

In response to the new regulations in Singapore, Hong Kong has also initiated a talent acquisition declaration. Recently, Hong Kong Legislative Council member Wu Jiezhuang posted on social media stating, “Since Hong Kong issued the virtual asset declaration in 2022, we have actively welcomed the industry to develop in Hong Kong. According to informal statistics, over a thousand Web3 companies have established operations in Hong Kong. If you are currently engaged in the relevant industry in Singapore and are interested in relocating your headquarters and personnel to Hong Kong, I am willing to provide assistance and welcome you to develop in Hong Kong!” This indicates that what seems to be a new regulation will have a profound impact on the global encryption industry landscape in the long term.

03 Small investors finally retreat, large institutions take the stage.

From a policy perspective, Singapore’s move is very resolute. It not only directly faces the impending project losses brought about by stringent regulations but also clearly expresses the government’s zero-tolerance regulatory attitude towards arbitrage loopholes. This serves as a wake-up call for the development of the local Web3 industry in Singapore. The era of laxity is gone, and tightening is the way forward. By imposing high compliance costs, it aims to completely reshuffle small and gray projects and explicitly encourages large enterprises with strong backgrounds, robust capabilities, and ample capital to establish their presence. A healthy and sustainable industry is the starting point of Singapore’s policy.

From an essential perspective, why is Singapore so resolutely increasing regulation? Aside from the local spirit of rule of law, the key is that the industry’s benefits do not outweigh the negative externalities. From a national standpoint, the encryption industry appears to be thriving, but due to its unique decentralized nature and global operations, tax revenue is significantly lower than that of equivalent industries. Meanwhile, the encryption industry has given rise to increasing cases of fraud and gray market activities. According to data provided by the Singapore Police Force, cryptocurrency scams have become a high-frequency occurrence in Singapore’s fraud cases, sharply rising from about 6.8% in 2023 to about 24.3% in 2024, indicating a worsening situation. It is worth mentioning that cryptocurrency played an important role in the previous billion-dollar money laundering case in Singapore. With low taxes and high crime rates, there is also a need to squeeze the production and living resources of local residents, leading to internal conflicts. In light of this situation, it is reasonable that Singapore, which has always adhered to strict governance, is now issuing regulatory policies.

In fact, this is also the reason considered by our country in its regulatory strategy. Compared to Singapore, our country has a large population base, higher regulatory complexity, and a more astonishing degree of policy arbitrage. Ultimately, our country chose a tougher “one-size-fits-all” governance approach, while Singapore retained part of the market to achieve a balance between regulation and innovation.

Through a narrow view, Singapore’s transformation also reflects the global regulatory shift. For the encryption industry, the trend of compliance is unstoppable, and compliance has shifted from an option to a mandatory requirement. In the past, the development strategy of global encryption companies was to seek regulatory havens, becoming more concentrated in gray areas. However, now that clear regulatory mechanisms have been established in places like the United States, Europe, Hong Kong, and Singapore, only by embracing compliance and moving towards transparency can they truly establish a foundation for long-term development. Moreover, compliance to a certain extent determines the underlying characteristics of industry development; the bargaining and competitive power of large institutions will far exceed that of other companies, and the opportunities for startups will inevitably be greatly squeezed. From the mainland to Hong Kong, and then from Hong Kong to Singapore, now setting sail again, for startups, the fear of merely following the grass is not daunting; finding the area most aligned with their business may indeed be an issue that needs to be addressed in the development process.

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