Only about a dozen of those applications had been approved when the crypto market recently underwent a massive selloff, which erased the values of digital tokens Luna and TerraUSD, toppled crypto hedge fund Three Arrows Capital Ltd. and forced some crypto lenders to freeze withdrawals.

The Luna Foundation Guard and Terraform Labs—the entities behind the sister tokens’ crash—were established and registered in Singapore. respectively. Vauld Group, a crypto lender that has suspended withdrawals and filed for protection against creditors, is also based in the country. Three Arrows, which is being liquidated, was based in Singapore for years and its founders, Kyle Davies and Su Zhu, continued to live and work in the country even after moving the fund’s domicile to the British Virgin Islands in 2021.

The casualties have continued to mount. Zipmex, a Singapore-based crypto exchange, filed for protection against its creditors in late July. Hodlnaut, a crypto lender based in the country, said this week it has halted many of its services.

Hodlnaut had earlier received in-principle approval from the MAS for a license. In June, the firm’s chief executive, Zhu Juntao, said the firm had $750 million in assets under management at its peak, with the vast majority from users outside the country. “I am hiring 50 employees in Singapore and I’m paying taxes in Singapore. So that would benefit the government tremendously,” he said on a panel organized by Singapore Management University and The Wall Street Journal.

A spokesperson for the regulator said it has rescinded its license approval, and that Hodlnaut’s service suspension didn’t violate local regulations. “MAS has been continually reminding the general public that dealing in cryptocurrency is highly hazardous. Not only are the values of cryptocurrencies extremely volatile, customers’ monies are not protected under the law,” the spokesperson added.

In the wake of crypto’s latest rout, the financial regulator has warned it will get tough on bad actors, and intends to lay out a road map this month on how it plans to develop Singapore as a digital-asset hub, it said recently.

“These so-called ‘Singapore-based’ crypto firms have little to do with crypto-related regulation in Singapore,” MAS Managing Director

Ravi Menon

said in a July speech. He said Terraform Labs, Luna Foundation Guard and Vauld weren’t licensed by the MAS, while Three Arrows—which the regulator recently reprimanded—wasn’t regulated under the country’s Payment Services Act, the main framework governing digital assets companies.

Mr. Menon acknowledged, however, that crypto regulations in Singapore and elsewhere have so far focused on money laundering and terrorist financing risks, and regulations broadly are still catching up with the evolving industry.

Before the recent market crash, many crypto companies were drawn by Singapore’s attractive tax, immigration and corporate policies, and its promises to support blockchain development and innovation.

Singapore’s status only grew when Hong Kong, its main rival, lost its luster as China cracked down on crypto trading and mining last year and as the Chinese city’s strict pandemic controls hurt its reputation as a globally connected hub, spurring high-profile firms like FTX to relocate. Many moved to Singapore, creating a pool of talent that is still drawing some crypto companies.

State-backed DBS Group Holdings Ltd., Singapore’s largest bank, launched a digital-asset exchange for institutional investors last year. It was planning to expand its services to retail customers, but changed its mind a few months ago after Singapore banned marketing for crypto trading in public.

The MAS’s close scrutiny of license applications, meanwhile, has frustrated many crypto firms. Dozens have withdrawn their applications, including the Singapore affiliate of Binance, the world’s largest crypto exchange, which went on to secure a license in Dubai.

“Many in the industry are confused and frustrated by the mixed signals being sent out by the MAS,” said Claire Wilson, a partner of Singapore-based advisory firm Holland & Marie. “In one breath, Singapore says that it wants to be an innovative digital assets hub, and in the next it says that it imposes a stringent regime.”

She said the licensing process has been “a slow and tedious ordeal,” and some firms are likely to leave Singapore for other jurisdictions.

Some crypto companies say they’ve been subject to additional scrutiny from the MAS following the collapses of Terra and Three Arrows. Firms that have gotten licenses or are nearing completion said it has been a two-year process that included sitting for interviews with regulators, providing detailed information on how they make money and showing officials how they safeguard against money laundering and hacks.

Crypto.com, which operates a popular trading platform, in June said it won in-principle approval for a license to offer a range of payment services to customers in Singapore. Its CEO and co-founder,

Kris Marszalek,

said the firm will deepen its roots in the country, and that the MAS’s approval “reflects the trusted and secure platform we have worked diligently to build.”

“When you do get the license, it’s almost like a badge of pride,” said Adrian Ang, a partner at Singapore-based law firm Allen & Gledhill. “If you are licensed in Singapore, everyone knows that you must have gone through a difficult application process, and people would probably have confidence that you meet those same high standards that make it difficult to get a license.”

See Wan Toong, chief technology officer of Web3 game studio Red Door Digital, which has operations in Taiwan and Singapore, said he’s holding his breath for details on how Singapore’s crypto regulations will shape up. Web3 technology, which Singapore authorities have expressed support for, promises a future version of the internet that uses blockchain technology to create applications and programs.

“It could weed out a lot of the money-grabbing high-risk projects,” he said, “but the risk is they overcompensate and create blanket regulations.” Having too many regulations could also defeat the purpose of Web3, which is by nature decentralized, he added.

Kristi Swartz, a Hong Kong-based partner at DLA Piper, said regulators face the quandary of wanting to be specific and prescriptive but also broad enough to catch misconduct or risky acts—including those they may not have thought of yet—in a fast-moving industry. The focus should be on regulating the activity, not the technology, she added.

“When you’re trying to be clear and stern but yet flexible, it’s hard,” Ms. Swartz said.

—Jing Yang contributed to this article.

Write to Elaine Yu at elaine.yu@wsj.com and Caitlin Ostroff at caitlin.ostroff@wsj.com