The Evolution of Web3 Regulatory Policies in Singapore: From Encouraging Innovation to Risk Prevention

In recent years, Singapore has been regarded as a popular hub for global virtual currency and Web3 enterprises. This city-state has attracted numerous participants from the crypto space with its lenient policies, stable legal system, and open innovation environment, and has once been hailed as the "Crypto Capital of Asia."

However, over time, Singapore's regulatory attitude is undergoing subtle changes. The early "encouraging innovation" model is gradually shifting towards a more cautious approach that emphasizes "risk prevention and control." This shift has raised concerns among some, with even questions about whether Singapore is taking overly strict measures against the Web3 industry.

In fact, this change can be understood as Singapore having completed the initial stage of "primitive accumulation" and now entering the stage of refined governance.

Initial Stage: Open Innovation, Attracting Talent

Singapore initially adopted a relatively open attitude. The Payment Services Act (PSA) introduced in 2019 provided a clear legal basis for digital payment token (DPT) services, creating a clear licensing pathway for businesses such as cryptocurrency exchanges and wallet services. At the same time, the Monetary Authority of Singapore (MAS) actively encourages technological innovation, promoting experimental projects exploring central bank digital currencies and tokenized assets, such as "Project Ubin" and "Project Orchid".

This stage can be seen as a period for Singapore to seize the opportunity. As long as the compliance bottom line is not touched, companies can boldly experiment. For many startup teams, this is a rare development opportunity.

Industry Turmoil: Regulatory Tightening

With the rapid expansion of the industry, some potential risks have begun to emerge. In 2022, Three Arrows Capital (3AC) collapsed in Singapore, followed closely by the highly publicized FTX bankruptcy, which put immense pressure on Singapore's financial regulators. As one of the global financial centers, Singapore realizes that this is not just an issue concerning individual companies, but also relates to national credibility.

To address these challenges, the Singaporean regulatory authorities acted swiftly. On one hand, they strengthened regulations on cryptocurrency service providers by introducing stricter Financial Services and Markets Act (FSM); on the other hand, they implemented clear restrictions on retail investors, emphasizing that cryptocurrency investments should not be equated with purchasing lottery tickets.

Retail Investors: Limiting Risk

At the end of 2023, the regulatory guidelines released by MAS directly imposed multiple restrictions on retail investors. These regulations include:

• Prohibit cryptocurrency service providers from offering any form of rewards to retail investors, such as cashback, airdrops, or trading subsidies.
• Prohibit providing features that may amplify risks, such as leverage and credit card deposits.
• Require assessment of the user's risk tolerance and set investment limits based on net asset value.

These measures indicate that Singapore is more inclined to attract rational investors rather than speculators pursuing short-term high-risk returns.

Service Provider: Strict Admission

By 2025, regulatory trends will further strengthen. In the final policy guidelines released by MAS on May 30, it is stipulated that any business that does not obtain a Digital Token Service Provider (DTSP) license must complete compliance procedures by June 30, 2025, if it wishes to continue providing services to overseas clients. This policy does not set a transition period, nor does it allow for negotiation.

Currently, only a few leading companies have been approved, such as certain well-known trading platforms and payment companies. There are also some companies that are in an exemption status, either having passed strict anti-money laundering and risk reviews, or maintaining a high level of cooperation with regulatory authorities. For other companies, they either need to turn to other markets or must complete the compliance process as soon as possible.

Fund Management: Professional Requirements

Singapore's regulatory tightening has also extended to the fund management sector. As a traditional fund hub in the Asia-Pacific region, Singapore is working hard to incorporate virtual assets into formal fund management processes.

The MAS regulations state that even cryptocurrency funds that specifically serve "qualified investors" must possess the corresponding qualifications. This includes comprehensive requirements such as risk hedging capability, client asset identification, internal risk control processes, and even anti-money laundering reporting mechanisms. This means that cryptocurrency funds that could previously be established based on simple models will no longer be allowed in Singapore.

Conclusion: Increased Regulation or Industry Suppression?

In the face of this wave of regulatory upgrades, some lament that Singapore is no longer the ideal place for Web3. However, from another perspective, this is actually a natural evolution of regulation - from allowing trial and error to standardizing order, which is a necessary path for any emerging market to mature.

Singapore today may no longer welcome participants with a short-term speculative mindset, but for teams with real technical strength and long-term planning, it remains one of the most attractive markets in the world.

Singapore's attitude can be summarized as: welcoming responsible innovation, but not tolerating the abuse of trust. In other words, if you aspire to build a long-term career in the Web3 space, Singapore is still an open choice. But if you're just looking to "make a quick buck and leave," you might be disappointed.

However, there are also views that the Web3 industry is still in its early developmental stage, and the future form has not yet been fully determined. Implementing strict regulations too early may stifle innovation and could even "throw away" valuable innovations along with it. Therefore, finding a balance between encouraging innovation and preventing risks remains a significant challenge for Singapore.