The New York Department of Financial Services (NYDFS) has reportedly ordered blockchain company Paxos Trust to stop the issuance of dollar-pegged Binance USD (BUSD) stablecoin, the 3rd-largest stablecoin by market cap.

The New York regulator's action comes shortly after the U.S. Securities and Exchange Commission (SEC) provided Paxos with the source – a letter the regulator used to notify the company of its planned enforcement action. The notice claims that Binance USD is an unregistered security.

According to a statement from Binance, NYDFS has reportedly asked Paxos to stop creating more BUSD tokens. Paxos will continue to manage redemptions for the product.

The latest regulatory action against the third-largest stablecoin comes amid growing scrutiny of the crypto market. Just last week, the SEC declared that crypto staking services violated securities laws, forcing Kraken to shut down its staking service entirely. Coinbase joined the fray, claiming that its staking product is not a security.

The securities debate in the crypto market has been ongoing and has been in the spotlight ever since the SEC filed a lawsuit against Ripple, the issuer behind the Ripple (XRP) token. The court investigation is not closed. When an investment in a company expects profits through the efforts of someone other than the investor, it is often considered collateral.

However, security allegations against stablecoins could pose a major challenge to the crypto industry, as stablecoins are a popular entry point for users to take their first steps in crypto. Cointelegraph turned to legal experts to understand how stablecoins qualify as securities. While stablecoins are supposed to be stable, buyers could benefit from a range of arbitrage, hedging and staking opportunities, according to a lawyer.

Bottom line:

Binance is prohibited by the U.S. Authorities (the largest cryptocurrency exchange has been fighting, with mostly poor progress, to reclaim its good standing status in the U.S., for which purpose it even hired several U.S. nationals as its compliance officers some time ago). Recently Binance announced suspension of all transactions with the U.S. dollar. The latest move by the U.S. financial authorities clearly represents a new episode of the endless tit-for-tat game.