Singapore, the cryptocurrency hub at the crossroads of innovation and regulation

Author: Rick Maeda

Compiled by: Deep Tide TechFlow

Abstract

• Despite the unclear regulatory environment surrounding Web3 in most parts of the world, Singapore has long been regarded as a leader in providing a clear framework for various businesses and asset managers in the industry.

• In this issue of Presto Research's Asia Focus series, we analyze the various components of the regulatory environment to explore Singapore's appeal to crypto businesses.

• We conclude our study with comments from Alex Svanevik and Hassen Naas, CEOs of Singapore Web3 companies Nansen and Laevitas, who share insights on why Singapore continues to attract crypto companies.

Figure 1: MAS Headquarters

1. Overview

As the digital asset space continues to evolve, the city-state of Singapore has become a guiding light for crypto businesses and projects looking to establish a foothold in Asia. Singapore's unique regulatory clarity, technological infrastructure, and strategic location make it a popular destination for various Web3 entities, including cryptocurrency exchanges, token issuers, blockchain infrastructure providers, and decentralized finance (DeFi) protocols.

This report serves as a comprehensive guide for crypto entrepreneurs, investors, and established players in the industry who wish to use Singapore as their operational base. Our analysis delves into the key components of Singapore's crypto ecosystem, examining the regulatory environment and the practical experiences of businesses operating within it.

Singapore's approach to crypto regulation is characterized by a delicate balance between fostering innovation and mitigating risks. The Monetary Authority of Singapore (MAS), as the primary financial regulatory body, has established a clear regulatory framework while maintaining flexibility to adapt to the rapidly changing nature of blockchain technology and digital assets. This report outlines the functions of key institutions, including MAS and the Singapore FinTech Association, and their impact on various sectors of the crypto industry.

We explore the licensing requirements and regulatory considerations for a range of crypto-related businesses, including exchanges, payment service providers, token issuers, crypto funds, custodians, over-the-counter (OTC) desks, blockchain infrastructure providers, DeFi protocols, NFT platforms, and stablecoin issuers. Our analysis highlights the meticulous approach taken by Singapore's regulators, illustrating how different types of digital assets and services are classified and regulated under existing frameworks, such as the Payment Services Act (PSA) and the Securities and Futures Act (SFA).

To provide a comprehensive perspective on Singapore's crypto ecosystem, this report incorporates insights and experiences from established crypto participants in the city-state. Through interviews and case studies, we explore the practicalities of operating a crypto business in Singapore, including the steps to obtain necessary licenses, navigate compliance requirements, secure banking services, and leverage Singapore as a gateway to the broader Asian market.

By combining regulatory analysis with practical perspectives, this report aims to equip readers with the necessary knowledge and insights to make informed decisions when establishing or expanding crypto operations in Singapore. As the global crypto market continues to evolve, understanding Singapore's unique position as a nexus of innovation and regulation is crucial for anyone looking to capitalize on the opportunities this dynamic market offers.

2. Regulatory Bodies and Their Functions

Singapore's robust and forward-looking regulatory framework has played a crucial role in attracting Web3 founders, protocols, hedge funds, and venture capital firms. The city-state's approach to digital assets and blockchain technology is characterized by a balance between innovation and risk management. Two main regulatory bodies are responsible for overseeing the crypto and blockchain sectors:

(1) Monetary Authority of Singapore (MAS)

The Monetary Authority of Singapore is Singapore's central bank and integrated financial regulatory authority. Its responsibilities include:

• Licensing and regulating digital payment token (DPT) services under the Payment Services Act (PSA).

• Regulating crypto derivatives trading on approved exchanges.

• Supervising anti-money laundering and counter-terrorism financing (AML/CFT) compliance for crypto businesses.

• Issuing guidelines on digital token offerings and digital payment token services.

MAS has been proactive in engaging with the industry, regularly updating its regulatory framework to address emerging risks and opportunities in the Web3 space.

(2) Accounting and Corporate Regulatory Authority (ACRA)

While ACRA does not specifically target Web3, it remains relevant in terms of entity formation and corporate compliance:

• Overseeing the registration and regulation of business entities in Singapore.

• Ensuring compliance with corporate governance standards.

• Maintaining company registration information, including for companies in the Web3 space.

(3) Other Relevant Organizations

• Singapore FinTech Association: Although not a regulatory body, the Singapore FinTech Association plays a significant role in the ecosystem:

• Acting as a bridge between the industry and regulatory bodies.

• Promoting Singapore as a fintech hub and fostering innovation.

• Creating platforms for collaboration between traditional finance and Web3 companies.

• Providing educational resources and networking events for blockchain and crypto startups.

The interaction between these entities creates a comprehensive ecosystem that supports Web3 innovation while maintaining Singapore's reputation for regulatory transparency and financial stability. This balanced approach makes Singapore a preferred jurisdiction for Web3 founders and businesses.

Figure 2: Presto Labs' Singapore Office Source: Presto Labs

3. Rules and License Types Required for Various Crypto Businesses

Entities involved in the Web3/cryptocurrency industry face various licensing requirements—next, we will explore some types of businesses and their associated licenses.

(1) Payment Service Providers (including digital payment token exchanges):

• These businesses are governed by the Payment Services Act (PSA) and must apply for a license from MAS. There are two relevant licenses:

• Standard Payment Institution license (SPI): Suitable for smaller operations.

• Major Payment Institution license (MPI): Suitable for larger operations handling higher transaction volumes. Currently, there are 28 entities holding MPI in the digital payment token service category, including companies like Blockchain.com, Circle, and Coinbase.

• Both licenses require compliance with AML/CFT regulations, risk management measures, and customer protection measures.

(2) Token Issuers

• The regulatory strategy depends on the type of token:

• Security tokens: Regulated under the Securities and Futures Act (SFA) and require a Capital Markets Services (CMS) license.

• "Utility" tokens: May not require a specific license, but issuers should consider other obligations, such as compliance with the PSA if their tokens fall under digital payment tokens.

(3) Crypto Funds

• Depending on their structure and operations, they may need to obtain a Capital Markets Services (CMS) license for fund management.

(4) Cryptocurrency Custodians

• Providing custody services for digital payment tokens must obtain a license under the Payment Services Act (PSA).

• Must adhere to MAS guidelines on safeguarding digital assets.

(5) Over-the-Counter Desks

• Depending on the products traded, they may need to obtain a Capital Markets Services (CMS) license for trading capital market products or a Payment Services Act (PSA) license for providing digital payment token services.

• Must comply with AML/CFT regulations.

(6) Blockchain Infrastructure Providers

• Generally do not require specific licenses unless they engage in regulated activities.

• Must comply with relevant business laws.

(7) DeFi Protocols

• Currently operating in a regulatory gray area.

(8) NFT Platforms

• Depending on the nature of the NFTs traded (e.g., if NFTs are considered securities) or whether the platform has access to fiat or digital payment tokens (DPT), a license may be required.

• If financial transactions are involved, AML/CFT regulations must be followed.

(9) Stablecoin Issuers

• Regulated under the stablecoin regulatory framework implemented by the Monetary Authority of Singapore (MAS) in August 2023.

• Single-currency stablecoins (SCS) pegged to the Singapore dollar or G10 currencies issued in Singapore will be subject to MAS's stablecoin regulatory regime. Other stablecoins will continue to be governed by the existing Payment Services Act (PSA) regulatory framework.

• Under MAS's stablecoin regulatory regime, SCS issuers must comply with specific reserve support, redemption, and disclosure requirements.

Other Key Considerations

• All entities must register with the Accounting and Corporate Regulatory Authority (ACRA) in Singapore and comply with relevant corporate regulations.

• AML/CFT compliance is mandatory across all categories.

• Foreign entities may need to establish a local presence to obtain licenses.

• The regulatory environment is continually evolving, with MAS regularly updating guidelines and introducing new frameworks. This overview provides a snapshot of the current regulatory environment but does not constitute legal advice. Given the rapid developments in the crypto space, it is crucial for businesses to communicate directly with MAS and/or seek legal counsel to ensure compliance with the latest requirements.

4. Beyond Regulatory Factors: Why Singapore Remains Attractive in the Web3 Space

As discussed in the previous sections, the regulatory environment is relatively well-developed, providing clear guidance for a wide range of crypto industry participants. However, Singapore's advantages extend beyond this: its long-standing reputation as a hub for expatriates, world-class education system, national security, family-friendly infrastructure, and strategic location are non-crypto factors that make this city-state an ideal base for founders. We will hear from two founders about their decision to establish their companies in Singapore.

Alex Svanevik, Nansen

Nansen is a leading on-chain analytics company headquartered in Singapore. Co-founder and CEO Alex Svanevik shares his reasons for choosing to set up his company in Singapore:

Singapore is a crossroads of East and West, a meeting point for the private and public sectors, and a place where finance and technology converge. It is one of the few countries in the world that has operated under a "founder-centric model" for decades (until relatively recently) under the leadership of Lee Kuan Yew. Today, it is still governed by one of the most capable governments in the world. For these reasons, I believe this is an ideal place to do business.

This embrace of global talent has been a cornerstone of Singapore's economic strategy, significantly enhancing its appeal to entrepreneurs and businesses, including those in the Web3 space.

The attractiveness of Singapore as a business hub is not just hearsay. Data from the Accounting and Corporate Regulatory Authority (ACRA) shows a steady increase in the number of company registrations (Figure 3), while data from the Ministry of Manpower (MoM) indicates a rebound in employment pass (EP) numbers in the post-pandemic period (Figure 4):

Figure 3: Continuous Growth in Company Registrations in Singapore Source: ACRA data from data.gov.sg

Figure 4: Strong Rebound in Employment Pass (EP) Numbers Despite Decline During the Pandemic Source: Ministry of Manpower

Hassen Naas, Laevitas

Laevitas is a quantitative analytics company specializing in crypto derivatives. Hassen, as the founder and CEO, provides unique insights as he relocates the company's headquarters to Singapore.

The decision to relocate the company's headquarters was not a simple one, especially for a Web3 company, as the industry is often met with skepticism in many jurisdictions. I believe this self-reinforcing dynamic continues to strengthen Singapore's position as a center for entrepreneurial technology (now also Web3): businesses move here for clear regulations, superior living conditions, a thriving financial and tech sector, a highly skilled talent pool, and tax benefits, prompting regulators and the government to provide clearer regulatory and business frameworks. This, in turn, encourages more businesses to settle in Singapore, further motivating regulators to improve.

Singapore has a vast network of businesses and funds, including both crypto and traditional enterprises, and since we moved here, we have experienced all the expected benefits, even exceeding expectations. With many new developments in the pipeline, such as changes in market structure, order book imbalances, and time-weighted average price (TWAP) alert systems, we are excited to continue operating proudly in Singapore.

It is not surprising that the supportive regulatory environment mentioned by Hassen has led to a high adoption rate of cryptocurrencies. According to a recent report by investment migration consultancy Henley & Partners, Singapore ranks first globally in cryptocurrency adoption (Figure 5). Henley highlights that a strong regulatory environment, innovation and technology, and a favorable regulatory landscape are key factors that have placed this city-state at the forefront of the 2024 rankings.

Figure 5: Singapore Leads in Overall Cryptocurrency Adoption Source: Henley & Partners

5. Conclusion

Singapore's position as Asia's leading cryptocurrency hub is not a coincidence. The city-state has carefully cultivated an environment that balances innovation and regulation, creating favorable conditions for the healthy development of Web3 enterprises. The clear regulatory framework provided by the Monetary Authority of Singapore (MAS), combined with Singapore's strategic location, world-class infrastructure, and business-friendly policies, continues to attract founders and companies from around the globe.

As the crypto industry evolves, Singapore's flexible regulatory approach helps it maintain a competitive edge. Testimonials from industry leaders like Alex Svanevik and Hassen Naas emphasize the tangible benefits of operating within this ecosystem. Despite facing challenges, particularly in emerging areas like decentralized finance (DeFi), Singapore's strong track record indicates that it will continue to refine its approach, balancing innovation with prudent risk management.

For entrepreneurs and established industry participants, Singapore offers a unique blend of Eastern and Western influences, financial acumen, and technological capabilities. As the global cryptocurrency landscape continues to change, Singapore's role as a beacon of stability and innovation in the Web3 space seems poised to become even more significant.