Written by Tom Wilson and Elizabeth Howcroft

LONDON (Reuters) – New York’s top financial regulator has ordered Paxos, the company behind major cryptocurrency exchange Binance’s stablecoin, to stop issuing the token, Paxos said in a statement on Monday.

Binance USD (BUSD), one of the largest stablecoins in the world, is issued and redeemed by New York-based Paxos Trust Company, both of which are regulated by the New York Department of Financial Services.

According to the Paxos website, the token, which is designed to maintain a stable value and is widely used by crypto traders on Binance, is backed by reserves of ordinary cash and US Treasuries.

Paxos said it will stop issuing new BUSDs starting February 21 “at the direction of, and in close coordination with, the New York Department of Financial Services.” Paxos will continue to support and buy back existing BUSDs “until at least February 2024,” the statement said.

Binance CEO Changpeng Zhao wrote in a series of comments on Twitter: “Paxos has reported that the New York Department of Financial Services (NYDFS) has ordered them to stop minting new BUSD.”

“As a result, the market capitalization of BUSD will only decrease over time,” he said, adding that Paxos has assured Binance that the funds are fully covered by Paxos’ bank reserves.

NYDFS did not immediately respond to a request for comment sent after U.S. business hours.

According to market tracker CoinGecko, Binance USD is the seventh largest cryptocurrency with over $16 billion in circulation. Zhao said that Binance “will continue to support BUSD for the foreseeable future” and that he has seen users “migrate to other stablecoins over time.”

The NYDFS crackdown, first reported by the Wall Street Journal, comes amid a broader crackdown on cryptocurrencies and Binance by US regulators. The Justice Department is investigating Binance on suspicion of money laundering and sanctions violations, Reuters previously reported.

The WSJ, citing unnamed sources, reported on Sunday that the Securities and Exchange Commission has told Paxos that it plans to sue the company, alleging that Binance USD is an unregistered security.

The SEC also did not immediately respond to a request for comment.

“IF the courts recognize BUSD as a security, it will greatly affect how the crypto industry develops (or does not develop) in jurisdictions where it is treated as such,” Zhao wrote on Twitter. He said he had no knowledge of the lawsuit.

(Reporting by Tom Wilson; Editing by Tommy Regary Wilkes and Hugh Lawson)

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