How Does the “Seigniorage” Concept Apply to Algorithmic Stablecoins?

Seigniorage, traditionally the profit made by a government by issuing currency, is applied to algorithmic stablecoins through the mechanism of token burning and minting. When the stablecoin is above its peg, the protocol profits from minting new coins at a value higher than the cost of creation.

This "profit" or seigniorage is often used to buy back or burn a supporting token, thus creating value for the ecosystem.