Singapore's Web3 Regulatory Upgrade: From Open Innovation to Risk Control

In recent years, Singapore has been one of the preferred destinations for global virtual currency and Web3 enterprises. Its lenient policies, stable legal system, and open innovation environment have attracted numerous crypto players, making it the "Crypto Capital of Asia." However, the situation is changing. Singapore is gradually shifting from its early "encouraging innovation" model to a more prudent approach focused on "risk prevention." From a policy perspective, some even believe that Singapore seems to be taking a tough stance on Web3.

In fact, Singapore has only completed the initial "primitive accumulation" and is now starting to implement more refined governance.

Early Stage: Welcome Innovation, Expand the Market

Singapore initially adopted an open attitude. The introduction of the Payment Services Act in 2019 provided a clear legal framework for digital payment token services. The Monetary Authority of Singapore actively encourages technological innovation, leading to a large number of Web3 projects being established here, including experimental projects exploring central bank digital currencies and tokenized assets.

This stage can be understood as the "first mover" period, where enterprises can boldly experiment as long as they do not touch the compliance bottom line. For many startup teams, this is a rare "window period."

After the Storm: Strengthening Risk Management

As the industry expands, some potential risks have begun to emerge. In 2022, Three Arrows Capital collapsed in Singapore, followed closely by the FTX bankruptcy, which put immense pressure on Singapore's financial regulators. In an industry where global compliance is a major concern, issues in financial centers affect not only businesses but also national credibility.

The Singapore regulatory authorities have taken swift action. On one hand, they have strengthened the regulation of cryptocurrency service providers by introducing stricter Financial Services and Markets Act; on the other hand, they have also set clear restrictions for retail investors, emphasizing that cryptocurrency investments should not be regarded as gambling activities.

Retail Investors: Tightening Policies

At the end of 2023, the regulatory guidelines issued by the financial management bureau directly restricted retail investor participation. The new regulations require cryptocurrency service providers to refrain from offering any form of incentives to retail investors, such as cashback, airdrops, or trading subsidies; prohibit the provision of leverage, credit card deposits, and other functions that amplify risks; and even require assessments of users' risk tolerance to set investment limits based on net asset value.

Singapore's goal is to attract rational investors rather than chasing high-risk speculators.

Service Provider: Strict Compliance Requirements

By 2025, this trend will become more apparent. The financial management authority stipulates that all enterprises that have not obtained a digital token service provider license must withdraw from the market by June 30, 2025, at the latest, if they wish to continue providing services to overseas clients. This policy has no transition period and leaves no room for negotiation.

At present, only a few leading companies have been approved, such as certain well-known trading platforms and fintech companies. There are also some companies that are in an exemption status, which have either passed stringent anti-money laundering and risk assessments, or have high compliance and background checks.

Other companies face two choices: either to switch to other markets or to quickly comply.

Fund Management: Raising Professional Standards

Singapore's requirements for fund managers have also increased. As a traditional fund center in the Asia-Pacific region, Singapore is committed to integrating virtual assets into formal fund management processes.

The Monetary Authority of Singapore stipulates that even when serving only "qualified investors," establishing a cryptocurrency fund in Singapore must meet corresponding qualifications. This includes comprehensive requirements such as risk hedging, client asset identification, the establishment of internal risk control processes, and even anti-money laundering reporting mechanisms.

This means that the model of crypto funds that could be established in Singapore in the past with just simple teams and ideas is no longer viable.

Conclusion: Regulatory Upgrade or Industry Evolution?

In the face of this wave of regulatory upgrades, some people lament that Singapore is no longer an ideal place for Web3. However, from another perspective, this is actually a normal evolution of regulation—from "allowing trial and error" to "regulating order"—which is an inevitable path for any emerging market to mature. Although Singapore may no longer welcome participants with a speculative mindset, it remains one of the most attractive markets in the world for teams with genuine technical capabilities and long-term planning.

As a senior official said: "We welcome responsible innovation, but will not tolerate abuses of trust." In other words, if you aspire to make a mark in the Web3 space, Singapore is still open for business. However, the idea of seeking short-term profits may no longer be applicable.

However, there are also viewpoints that believe the development of the Web3 industry is still in its early stages, and the future shape has not yet fully formed. Imposing strict restrictions on an immature industry too early may hinder innovation and even stifle valuable innovations. Finding a balance between promoting innovation and controlling risks remains a question that needs ongoing discussion.