A wallet lost approximately $21 million in crypto assets on Hyperliquid (a decentralized trading platform) due to a private key compromise. According to blockchain security firm PeckShield, which reported the incident on Friday, October 10, 2025, the attacker was able to drain the victim’s funds in a single transaction after gaining access to their private key.
The stolen assets included roughly 17.75 million DAI and 3.11 million MSYRUPUSDP, which the hacker then bridged to the Ethereum network. On-chain data shows the attacker moved the funds through multiple addresses to obscure their trail and make recovery more difficult.
Important Context:
The article emphasizes that this was an isolated incident targeting that specific wallet—the hack didn’t compromise Hyperliquid itself or its smart contracts. Instead, it highlights a vulnerability that’s common in decentralized finance: user-side security risks. Even as smart contract security improves, the theft underscores how critical it is for individuals to protect their private keys and use security measures like hardware wallets.
The Hyperliquid $21 million theft exposes a critical structural vulnerability in Singapore’s dual-track crypto regulatory approach. While Singapore has implemented one of the world’s most stringent frameworks for onshore crypto service providers (through the FSMA’s Phase 3 implementation on June 30, 2025), it has simultaneously created a regulatory vacuum for offshore decentralized finance platforms. This paradox leaves Singapore’s estimated 1.2 million crypto investors (29% of adult population) exposed to unprotected risks when accessing platforms like Hyperliquid, despite Singapore’s positioning as a global crypto hub.
Singapore’s Regulatory Architecture: A Deliberate Two-Tier System
The FSMA Framework: Fortress Singapore
Singapore’s crypto licensing rules under the FSMA took effect on June 30, 2025. This represents the most aggressive phase of regulation:
Scope of Regulation:
- As of 2025, 33 companies have proper MAS licenses. These licensed entities operate as the “regulated tier” of Singapore’s crypto ecosystem.
- All Singapore-based crypto firms offering overseas services must be licensed under FSMA by June 30, 2025, with retail protections banning credit purchases, incentives, and requiring investor risk tests.
- Unlicensed operations face SGD 250,000 fines or three years’ imprisonment.
Extraterritorial Ambition:
- One of the most significant updates is the requirement that all crypto firms based in Singapore must obtain a licence under the Financial Services and Markets Act (FSMA) if they offer services to overseas clients. This means Singapore has extended its regulatory reach beyond its borders to capture Singapore-incorporated entities operating internationally.
Deliberate Licensing Constraints:
- From June 30, 2025, DTSPs providing services solely to customers outside of Singapore relating to digital payment tokens and tokens of capital market products will need to be licensed. MAS has set the bar high for licensing and will generally not issue a licence.
This is the crucial detail: MAS has intentionally made it nearly impossible for offshore crypto services to obtain licenses, effectively excluding them from Singapore’s regulated perimeter.
The Decentralized Finance Gap: Deliberate Non-Regulation
What’s notably absent from Singapore’s regulatory framework is any enforcement mechanism for decentralized platforms—those without corporate entities, traditional operating structures, or customer acquisition strategies. Hyperliquid, as a decentralized exchange protocol, doesn’t fit the FSMA’s definition of regulated services because:
- No centralized entity to license or enforce against
- No customer relationship (users interact with smart contracts, not service providers)
- No Singapore jurisdiction or presence to regulate
- Protocol-based rather than company-based operation
This is not regulatory oversight; it’s regulatory architecture that accepts DeFi as a parallel financial system operating beyond state supervision.
Singapore’s Investor Exposure to Unregulated Risks
Market Size & Demographics
The gap between regulated and unregulated crypto exposure in Singapore is substantial:
Overall Market Penetration:
- Singapore’s crypto market saw a sharp decline in ownership in 2024, dropping from 40% to 29%. However, this still represents approximately 1.2-1.5 million Singaporeans engaged in crypto markets.
Active DeFi Participation:
- 46% of investors hold stablecoins, primarily for trading and DeFi activities, with 83% of these tied to the US dollar. This is significant: nearly half of Singapore’s crypto investor base actively engages in DeFi activities—precisely where risks like Hyperliquid exist.
Crypto Payment Infrastructure:
- In the second quarter of 2024, the total value in crypto received by merchant services in Singapore reached nearly $1 billion—significantly higher than any other quarter in the past two years. This suggests increasing institutional and retail engagement with crypto infrastructure.
Risk Segmentation
Singapore’s crypto investors operate across three distinct risk tiers:
- Regulated Tier (using licensed MAS-regulated exchanges): Protected by custody standards, AML/CFT compliance, and regulatory oversight.
- Unregulated Custodial Tier (using offshore centralized exchanges): No MAS protection, but some institutional safeguards may exist with providers.
- Self-Custody DeFi Tier (accessing protocols like Hyperliquid): Zero institutional protections, complete user responsibility for security, users exposed to private key compromise, smart contract risks, and protocol-level vulnerabilities.
The Hyperliquid incident directly affects the third tier—precisely where 46% of Singapore’s crypto investors are active.
Analysis of Singapore’s Deliberate Regulatory Choice
Why Singapore Has Left DeFi Unregulated
The decision to exclude decentralized platforms from FSMA regulations reflects three strategic considerations:
1. Jurisdictional Limitation Singapore cannot effectively regulate decentralized protocols that operate across multiple jurisdictions without centralized control points. The regulatory philosophy prioritizes enforcing local operations (Singapore-based businesses) over attempting impossible international enforcement.
2. Competitive Strategy By licensing only 33 entities while “generally not issuing” licenses to offshore operators, Singapore has created a clear competitive advantage for its own regulated crypto firms. This protects Singapore-based companies from regulatory arbitrage while preventing foreign platforms from gaining regulatory legitimacy in Singapore.
3. Ideological Differentiation Singapore’s approach distinguishes between “service providers” (regulated) and “protocols” (unregulated). This reflects a philosophical stance that only intermediaries who take custody or control of assets should face regulation—pure software protocols remain largely outside this framework.
However, this creates a protection paradox: Singapore offers maximal protection to users of regulated platforms but zero protection to users of decentralized platforms, regardless of which group faces greater actual risk.
The Hyperliquid Incident as a Stress Test
Why Private Key Compromise is Uniquely Dangerous in Singapore’s Framework
The Hyperliquid theft ($21 million from a single wallet compromise) represents a scenario where Singapore’s regulatory framework provides absolutely no remedies:
No Recovery Mechanisms
- Unlike centralized exchange hacks (which might trigger regulatory intervention or insurance), private key compromise is entirely user-side.
- No regulatory body oversees wallet security practices or enforces standards for self-custody security.
- No insurance framework exists to compensate victims of compromised private keys on decentralized platforms.
No Prevention Infrastructure
- The Monetary Authority of Singapore (MAS) issued guidelines giving effect to MAS’ expectations that Digital Payment Token (DPT or more commonly known as cryptocurrency) service providers should not promote their DPT services to the general public in Singapore. This discourages retail participation in regulated platforms but does nothing to prevent retail participation in unregulated DeFi.
- No mandatory security education campaigns specific to DeFi self-custody practices.
- No warnings issued to Singapore investors about private key security risks on decentralized platforms.
No Detection Systems
- Sophisticated attackers targeting Singaporean crypto investors (through phishing, malware, or social engineering) can operate without regulatory detection because their targets are not using regulated services.
- No regulatory monitoring of transaction patterns or suspicious wallet movements by Singapore residents on decentralized platforms.
Exposure Calculation for Singapore
Given that 46% of Singapore’s crypto investors actively engage in DeFi:
- Estimated DeFi-active investors in Singapore: 550,000-700,000 people
- If even 1% maintain significant positions on unregulated platforms like Hyperliquid: 5,500-7,000 investors
- Average account size on DeFi platforms (mix of retail and sophisticated investors): SGD 50,000-500,000
- Potential aggregate exposure: SGD 275 million to SGD 3.5 billion
This is speculative, but demonstrates the scale of concentration risk: a coordinated attack targeting Singapore’s crypto community through a popular DeFi platform could result in billions in aggregate losses—potentially triggering regulatory intervention and legislative changes.
Specific Policy Gaps
Gap 1: Investor Education Vacuum
Current State:
- Singapore’s regulatory focus emphasizes platform licensing and AML/CFT compliance.
- No MAS-sponsored campaigns educate retail investors about private key security, hardware wallet best practices, or DeFi-specific risks.
- The rules require clear risk disclosures, proper customer suitability assessments, and restrictions on certain high-risk practices like credit card purchases of cryptocurrencies. These apply only to regulated platforms.
Policy Gap: Unregulated platform users receive no mandatory risk disclosures because MAS has no regulatory authority over them. The Hyperliquid incident represents exactly the kind of event that should trigger investor education campaigns, yet no such mechanism exists.
Gap 2: Insurance & Recovery Framework
Current State:
- Singapore has no crypto-specific insurance or recovery fund for self-custody losses.
- Regulated platforms may offer insurance to clients (through private arrangements), but this is not mandated.
- Decentralized platform users have zero institutional recourse.
Policy Gap: Unlike traditional financial systems where deposit insurance or investor compensation schemes exist, Singapore’s crypto ecosystem offers no recovery mechanism for users of unregulated platforms—even when attacks are sophisticated and not obviously the user’s fault.
Gap 3: Cross-Chain and Forensics Coordination
Current State:
- Crypto providers must collect and share sender and recipient details for transactions over SGD 1,500 (around USD 1,100). This “travel rule” applies to regulated entities but cannot reach cross-chain transactions or decentralized platform activity.
- When funds are bridged (as in Hyperliquid) to Ethereum or other chains, Singapore’s regulatory oversight terminates.
Policy Gap: No international coordination mechanisms exist between Singapore’s MAS and other regulators (South Korean, Japanese, Hong Kong authorities) to track cross-border crypto movements or facilitate asset recovery following platform hacks or theft.
Gap 4: Operational Security Standards for Self-Custody
Current State:
- No Singapore guidelines exist for recommended practices in private key storage, wallet setup, or DeFi interaction security.
- No certification system exists for hardware wallet providers or custody solution providers serving Singapore residents.
- MAS has taken decisive actions against non-compliant firms, revoking licenses and adding to its Investor Alert List to maintain trust in the ecosystem. This maintains trust in regulated platforms but does not prevent unregulated platform access.
Policy Gap: Singapore lacks an institutionalized framework for promoting best practices in self-custody security. While sophisticated investors may independently research security measures, retail investors using DeFi platforms lack authoritative guidance from Singapore’s financial regulators.
International Comparative Context
Singapore’s approach is notably different from emerging regulatory models in other jurisdictions:
United States (SEC/CFTC approach):
- Attempts to regulate DeFi protocols through securities law and derivatives regulation
- Creates unclear legal status but attempts to establish some regulatory perimeter
European Union (MiCA approach):
- Extends platform licensing requirements to DeFi service providers where they operate within EU jurisdiction
- Attempts to regulate by function rather than structure
Singapore’s Approach:
- Accepts that decentralized protocols cannot be effectively regulated domestically
- Focuses exclusively on regulating service providers and intermediaries
- Creates explicit regulatory void for self-custody DeFi activity
This “regulatory abstinence” is pragmatic but creates protection gaps.
Risk Transmission: From Individual to Systemic
Scenario 1: Concentrated Losses (Low-Probability, High-Impact)
If a single sophisticated attack targeted Singapore’s DeFi investor community through a compromised Hyperliquid campaign or similar platform vulnerability, aggregate losses could exceed SGD 500 million. This would:
- Generate media attention and public outcry
- Prompt calls for MAS intervention despite jurisdictional limitations
- Trigger legislative pressure to extend regulations to DeFi
- Potentially damage Singapore’s reputation as a “safe” crypto hub
Scenario 2: Regulatory Escalation
If private key compromise incidents involving Singapore residents accumulate (3-5 major incidents within 12 months), MAS might:
- Issue formal warnings against specific decentralized platforms
- Require licensed platforms to prominently display warnings about unregulated alternatives
- Coordinate with international regulators on best practices
- Potentially propose legislative amendments extending FSMA to DeFi protocols (though likely ineffective)
Scenario 3: Institutional Impact
If Singapore-based crypto firms or financial institutions suffer losses from DeFi exposure (through employee trading, treasury management, or advisory services), this could:
- Prompt stricter internal compliance frameworks
- Drive institutional migration toward custodial solutions
- Reduce Singapore’s competitive advantage as a DeFi hub
- Create pressure for regulatory harmonization across Asia
Recommended Policy Responses
Priority 1: Investor Education Campaign (Low Cost, High Impact)
Immediate Action:
- MAS should sponsor a comprehensive public campaign on DeFi self-custody security
- Target content: hardware wallet setup, private key protection, phishing prevention, smart contract risks
- Distribution: Partnerships with licensed crypto platforms, financial literacy organizations, schools/universities
- Messaging should emphasize that MAS does not regulate decentralized platforms and users assume full responsibility
Timeline: 6 months
Budget: SGD 2-5 million
Expected Impact: Reduce preventable private key compromises by 30-50% through improved security practices
Priority 2: Best Practices & Self-Certification Framework (Medium Cost, Moderate Impact)
Immediate Action:
- MAS should publish “best practices” guidelines for self-custody security (voluntary, non-binding)
- Develop certification standards for hardware wallet providers, custody solution providers, and security auditing firms serving Singapore residents
- Create a publicly available registry of “endorsed” self-custody security providers
- Establish a public reporting mechanism for security incidents (voluntary, to build aggregate data)
Timeline: 12 months
Budget: SGD 3-8 million
Expected Impact: Establish market incentives for better security practices; create transparency on emerging risks
Priority 3: International Coordination & Information Sharing (Low Cost, Strategic Impact)
Immediate Action:
- Initiate regular coordination meetings with Hong Kong SFC, South Korean FSC, and Japanese FSA on crypto security incidents
- Establish information-sharing protocols for attacks targeting regional investors
- Coordinate on cross-border asset recovery processes
- Explore joint regulatory guidance on DeFi risks
Timeline: 9 months
Budget: SGD 1-2 million
Expected Impact: Enable faster response to coordinated attacks; facilitate international asset recovery
Priority 4: Insurance & Recovery Framework Development (High Cost, High Impact)
Longer-Term Action:
- Commission study on feasibility of crypto-specific insurance products (private sector-led)
- Explore mutual-aid fund models where DeFi users voluntarily contribute to recovery pools
- Investigate whether existing insurance frameworks can be adapted for crypto self-custody losses
- Consider regulatory incentives for platforms offering client insurance (as backstop layer)
Timeline: 18-24 months
Budget: SGD 5-10 million
Expected Impact: Create recovery mechanisms for crypto users; reduce systemic risk from concentrated losses
Priority 5: Regulatory Coordination with International Standards Bodies
Long-Term Action:
- Participate in FATF (Financial Action Task Force) DeFi working groups to harmonize international standards
- Contribute to ISO standards development for crypto security practices
- Explore whether Singapore can pioneer international frameworks for DeFi governance
- Coordinate with regional central banks on potential digital asset regulatory harmonization
Timeline: Ongoing
Budget: SGD 2-5 million annually
Expected Impact: Position Singapore as thought leader in crypto regulation; anticipate future systemic risks
Implementation Considerations
Why MAS Should Act (Despite Jurisdictional Limitations)
MAS cannot regulate Hyperliquid directly, but it can:
- Establish Standards: Published guidance on DeFi security acts as a reference point for industry and creates market expectations
- Reduce Harm: Education campaigns prevent preventable incidents, reducing negative externalities
- Monitor Systemic Risk: Public reporting mechanisms and incident tracking enable MAS to identify emerging threats
- Protect Domestic Ecosystem: By encouraging security best practices among Singapore residents, MAS protects Singapore’s reputation as a financial hub
- Enable International Cooperation: Coordination with other Asian regulators creates deterrence against attacks targeting regional investors
Political Economy of Regulation
The current regulatory framework reflects a strategic decision to maintain Singapore’s attractiveness as a crypto hub by avoiding overregulation. However, this creates asymmetric risk: Singapore provides fortress protection to licensed platform users while leaving self-custody users exposed.
This balance may be sustainable until a high-impact incident (concentrated losses affecting many Singapore residents) shifts public and political expectations. Proactive measures now could prevent reactive, heavy-handed regulation later.
Stakeholder Alignment
Licensed Crypto Platforms: Should support investor education (increases retail engagement) and security standards (differentiates them from unregulated alternatives)
Retail Investors: Would benefit from education and recovery frameworks but currently lack representation in regulatory processes
Financial Institutions: May support international coordination on DeFi risks (protects their exposure)
MAS: Has institutional interest in maintaining ecosystem stability without overreach
Conclusion: Strategic Imperative
The Hyperliquid incident is a data point, not a catastrophe for Singapore. However, it illuminates a structural vulnerability: Singapore has built a fortress around its regulated crypto ecosystem while leaving Singapore residents exposed when they venture into decentralized finance.
The deliberate two-tier regulatory approach is pragmatically sound—MAS cannot effectively regulate decentralized protocols. However, this pragmatism should be accompanied by complementary policies that:
- Educate users about the actual risks they face
- Establish best practices and voluntary standards
- Coordinate internationally to detect and respond to attacks
- Build recovery mechanisms where possible
Without these complementary policies, Singapore risks either (a) experiencing a concentrated loss event that triggers political pressure for ineffective regulation, or (b) gradually losing sophisticated investors to jurisdictions offering better DeFi support infrastructure.
The window for proactive, nuanced policy action remains open. Singapore should use it.
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