New York's chief financial regulator has ordered Paxos, the company behind the stablecoin of major crypto exchange Binance, to stop issuing the token, Paxos said in a statement on Monday.

The Binance USD (BUSD) stablecoin, one of the world's biggest, is issued and redeemed by New York-based Paxos Trust Company, both of which are regulated by the New York Department of Financial Services.

The token, which is designed to keep a steady value and is widely used by crypto traders at Binance, is backed by reserves of ordinary cash and U.S. Treasuries, according to Paxos' website.

Paxos said it would stop issuing new BUSD as of Feb. 21 "as directed by and working in close coordination with the New York Department of Financial Services". Paxos will continue to support and redeem pre-existing BUSD until "at least February 2024, the statement said.

Binance CEO Changpeng Zhao wrote in a series of Twitter comments: "We were informed by Paxos they have been directed to cease minting new BUSD by the New York Department of Financial Services (NYDFS)."

"As a result, BUSD market cap will only decrease over time," he said, adding that Paxos assured Binance the funds were fully covered by Paxos' bank reserves.

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

Binance USD is the seventh-largest cryptocurrency, with more than $16 billion in circulation, according to market tracker CoinGecko. Zhao said Binance would "continue to support BUSD for the foreseeable future" and that he saw users "migrating to other stablecoins over time."

The NYDFS clampdown, first reported by the Wall Street Journal, comes amid a wider crackdown on cryptocurrencies and Binance by U.S. regulators. The Justice Department is investigating Binance for suspected money laundering and sanctions violations, Reuters has previously reported.

The WSJ, citing unnamed sources, reported on Sunday that the Securities and Exchange Commission has told Paxos 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' BUSD is ruled as a security by the courts, it will have profound impacts on how the crypto industry will develop (or not develop) in the jurisdictions where it is ruled as such," Zhao wrote on Twitter. He said he had no information on the lawsuit. (Reporting by Tom Wilson; Editing by Tommy Reggiori Wilkes and Hugh Lawson)