In a Seigniorage Model, What Incentivizes Users to Buy Bonds When the Stablecoin Is below Its Peg?

The primary incentive is the expectation of profit through arbitrage. When the stablecoin's price is below its peg, the protocol sells bonds or coupons at a discount, which can be purchased with the stablecoin.

These bonds can be redeemed for one full stablecoin at a later date, but only when the stablecoin's price has returned to or exceeded its peg. Therefore, users are incentivized to buy these bonds, effectively betting on the system's future stability.

This action reduces the circulating supply of the stablecoin, helping to restore the peg.