The Two-Stage Framework

Many financial regimes introduce products and permissions incrementally, but historical analogies do not prescribe a stablecoin rulebook. Plexo uses the same practical question: begin with the most bounded activity that a regulator can supervise, review the evidence, and decide whether broader permissions are warranted.

For stablecoins, transit and holding create different exposures. A transit-first design can reduce some holding-related exposure, but its residual risk remains corridor-, issuer-, and implementation-specific. The sequence is a Plexo proposal, not a reported international consensus.

A regulator can face a difficult choice between an over-broad prohibition and a permission that outruns its supervisory capacity. The relevant question is not whether a technology label is allowed, but which activity, issuer, customer, custody arrangement, and payment route can be supervised under current law.

A staged approach lets a regulator consider a bounded payment case while it continues to assess higher-risk activities such as holding, lending, and yield. It does not prove that one sequence is appropriate for every market or that a particular outcome follows from delay.

Stage 1 covers one architecture: the fiat sandwich.

1. Sender pays in local currency.
2. Licensed on-ramp converts to stablecoin.
3. Stablecoin transits on-chain, usually seconds to minutes.
4. Licensed off-ramp converts to destination fiat.
5. Recipient receives local currency.

The regulatory classification is straightforward: this is a payment service. The stablecoin functions as a settlement instrument, not a consumer asset. The Fiat Sandwich explains this architecture in detail. The license is a payment service provider or electronic money institution license, not a VASP or exchange license — a complete list of global regulatory regimes, regulators, and licensed entity aggregates is available in our VASP Registry Aggregates CSV/JSON Dataset.

Jurisdictions that have reached this conclusion include Singapore, where MAS added stablecoin activities to the Payment Services Act; UAE, where CBUAE placed payment tokens under central bank supervision; Brazil, where BCB classifies certain virtual asset provider activities as foreign exchange and international capital operations; and Chile, where the Fintech Law and central bank work bring certain stablecoins into the payment perimeter.

Permitting transit does not mean permitting anything. Stage 1 operators must meet the same compliance standard as any licensed payment institution.

If a stablecoin pays yield, it becomes a deposit substitute. Citizens move savings into it. Banks lose funding. Monetary policy loses traction. The dollarization risk that Stage 1 eliminated reappears.

Without yield, a stablecoin held in a custodial account is a parking spot for payment liquidity, not a savings product. The economic incentive to hold long term is removed. Holding remains functional, not speculative.

This distinction has already become the fault line in US crypto legislation: exchanges want yield to attract deposits; banks want it banned to protect their funding base. The regulatory design choice between those positions determines whether Stage 2 contains dollarization or amplifies it.

The Bank of England's November 2025 consultation paper provides the most detailed Stage 2 architecture to date. It proposes 100% backing by qualifying assets, at least 40% in unremunerated deposits at the Bank of England, and up to 60% in short-term sterling-denominated UK government debt. The paper also covers par redemption, temporary deviations for large unexpected redemption requests, and restrictions on reserve use.

The 40/60 split is a compromise: 40% supports immediate redemption liquidity, while 60% in government debt allows the business model to generate enough return to operate. The Bank explicitly frames the proposal inside an emerging international policy direction.

Scope. Which issuer, service, token, customer, and payment route are covered?

Permission. Which activity is permitted today, under which legal instrument, and subject to which conditions?

Controls. How do custody, redemption, sanctions, Travel Rule data, reporting, complaints, and recovery work in that activity?

Review. What evidence would justify expanding, narrowing, or withdrawing a permission?

Plexo proposes transit-first sequencing as one way to make those questions explicit. It is not a claim that every jurisdiction should adopt the same order.

Country policy changes, market adoption, informal activity, and supervisory outcomes have many causes. A country example can identify a question for diligence, but it cannot by itself prove that one policy choice caused a particular market outcome or that another jurisdiction will repeat it. Use current primary legal and supervisory sources for the named country before drawing an operational conclusion.

The materials show that regulators can distinguish activities, tokens, issuers, and risk controls. They do not show that every stablecoin use is a payment service, that trading and payments can always be separated cleanly, or that the listed jurisdictions share one policy sequence. Use the primary legal text and qualified local advice for the specific activity.

Brazil’s virtual-asset regulatory package is a useful source to inspect for the treatment of certain virtual-asset-provider activities and foreign-exchange or international-capital operations. It does not by itself prove that Brazil adopted Plexo’s Stage 1 logic or that the same legal treatment applies to every stablecoin transaction.

1. Residual risk. Does the proposed transit design limit particular holding-related exposures, and what risks remain?

2. Evidence before expansion. Which volume, compliance, settlement, complaints, and corridor data would a regulator review before changing permissions?

3. Operator conditions. Which controls, reporting duties, audits, and enforcement tools must be demonstrated before a broader activity is considered?

The answers depend on the legal perimeter and the named operator. A staged proposal does not remove the need for evidence, legal authority, or supervisory capacity.

Sequencing does not itself create regulatory authority. Where the law provides authority, a regulator may define permissions, conditions, reporting, and review triggers for a bounded activity, then decide whether to change the perimeter. The available tools and process must be verified in the relevant jurisdiction.

South Korea, Japan, Hong Kong, Switzerland, and other jurisdictions may have frameworks that do not fit a two-stage presentation. A comparison should not turn different instruments, dates, activities, and supervisory powers into a claim of common policy order. Plexo therefore presents two-stage sequencing as a proposal to test, not as an international consensus or a prediction of legal outcomes.

Holding controls can change over time. Current primary legal texts may set conditions such as reserve, redemption, or interest restrictions, but a framework should not assume those conditions will persist or apply across jurisdictions. Any operational conclusion requires the current rulebook, implementation status, and qualified jurisdiction-specific analysis.