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

In recent years, Singapore has played an important role in the global virtual currency and Web3 space. This city-state has been hailed as the "Crypto Capital of Asia" due to its liberal policies, stable legal system, and open innovation environment. However, over time, Singapore's regulatory strategy is undergoing a significant shift, gradually moving from an early focus on "encouraging innovation" to a more prudent approach centered on "risk prevention."

Initial Stage: Open Innovation, Attracting Talent

Singapore initially adopted a relatively open attitude. The Payment Services Act introduced in 2019 provides a clear legal framework for digital payment token services, outlining the path for license applications for businesses such as cryptocurrency exchanges and wallet services. The Monetary Authority of Singapore (MAS) actively promotes technological innovation and has launched several experimental projects exploring central bank digital currencies and tokenized assets. This phase can be seen as a "first mover" period, where innovative attempts are encouraged as long as they do not cross compliance boundaries.

Risk Manifestation: Regulatory Tightening

With the rapid development of the industry, some potential risks have begun to surface. In 2022, several high-profile financial events, including the collapse of Three Arrows Capital in Singapore and the bankruptcy of FTX, sounded the alarm for Singapore's financial regulators. To maintain the credibility of the national financial center, regulatory authorities took swift action. On one hand, they introduced stricter Financial Services and Markets Act to enhance the regulation of cryptocurrency service providers; on the other hand, they imposed restrictions on retail investors, emphasizing the importance of rational investing.

Retail Investment: Strict Restrictions

At the end of 2023, the regulatory guidelines released by MAS directly imposed multiple restrictions on retail investors. The new regulations require cryptocurrency service providers not to offer any form of incentives to retail investors, such as cashback, airdrops, or trading subsidies; prohibit features that may amplify risks, such as leverage and credit card deposits; and also require the assessment of users' risk tolerance and setting investment limits based on their net assets. These measures aim to attract rational investors rather than speculators.

Service Provider: Compliance Upgrade

By 2025, regulatory trends will become more pronounced. The MAS stipulates that any business not licensed as a Digital Token Service Provider (DTSP) that wishes to continue providing services to overseas clients must complete compliance upgrades by June 30, 2025. Currently, only a few leading companies have been approved or are in an exemption status. This means that most businesses will either need to quickly complete compliance upgrades or seek other markets.

Fund Management: Professional Requirements

Singapore's requirements for fund managers are becoming increasingly stringent. Even when serving only "qualified investors", institutions wishing to establish cryptocurrency funds must possess corresponding qualifications, including risk hedging capabilities, client asset identification, internal risk control processes, and anti-money laundering reporting mechanisms, among others. This marks a gradual inclusion of cryptocurrency fund management into the formal financial regulatory system.

Conclusion: Evolution of Regulation or Industry Suppression?

There is a view that Singapore is no longer the ideal place for Web3. However, from another perspective, this is actually a natural evolution of regulation—from the initial "allowing trial and error" to the later "regulating order." Although Singapore no longer welcomes pure speculation, it remains one of the most attractive markets in the world for teams with genuine technological strength and long-term planning.

However, there are also voices pointing out that the Web3 industry is still in its early stages of development, and imposing strict regulations too early may stifle innovation. Finding a balance between encouraging innovation and mitigating risks will be an ongoing challenge for Singapore and other regions.