Paxos, the company that issues the Binance USD (BUSD) stablecoin, has been instructed by its regulator to stop issuing the stablecoin, according to Binance.

“Paxos has informed us that they have been ordered by the New York Department of Financial Services (NYDFS) to stop minting new BUSD, BUSD is a stablecoin wholly owned and managed by Paxos,” Binance said in a statement. a statement. “As a result, the market capitalization of BUSD will only decrease over time. Paxos will continue to service the product, manage redemptions, and follow up with additional information as needed.”

The Wall Street Journal and Bloomberg were the first to report the news.

Paxos is a regulated trust company with a conservative approach to managing the backing assets of BUSD, the third largest stablecoin with a market capitalization of $16 billion. The reserve is held in Treasury bonds and bank balances.

As we noted in an article on Friday, Paxos only issues the stablecoin on the Ethereum blockchain, but Binance issues pegged tokens on other blockchains.

The NYDFS has been monitoring the BUSD until now. In a Paxos statement to Ledger Insights in January, Paxos told Ledger Insights: “The NYDFS must approve our BUSD operations, including the blockchains on which BUSD tokens can be listed. Today, BUSD is approved for issuance on Ethereum only.”

On Friday, Bloomberg reported that the NYDFS was investigating Paxos and the Wall Street Journal reported yesterday that Paxos had received a notice from Wells warning of impending legal action by the Securities and Exchange Commission (SEC). The reasons are related to the violation of investor protection laws.

SEC Chairman Gary Gensler has previously stated that “stablecoins can also be securities and investment firms.”

The irony is that the more conservative stablecoin issuers are probably the easiest targets because they want to comply. In contrast, Tether, the largest stablecoin and also considered the riskiest, is largely offshore.

Paxos has always positioned itself as an institutional and compliant company, as evidenced by its relationship with PayPal and major institutions, such as Citadel Securities, Schwab and Fidelity, which support the new institutional crypto exchange EXDM.

Circle issues the second largest USDC stablecoin. Its assets are held largely in a money market fund managed by Blackrock, with custody by BNY Mellon.

The big question is why BUSD is being targeted first. One can only speculate. One possibility is that Paxos associates are not as important as Circle ones. Another relates to BUSD’s partnership with Binance in the eyes of consumers and regulators who want to get ahead of possible future risks.