What Is Seigniorage in the Context of Stablecoins?

Seigniorage is the profit made by a government or authority by issuing currency. In algorithmic stablecoins, it refers to the profit mechanism where the protocol issues new stablecoins at face value ($1) to buy back and burn the volatile governance token.

This process is intended to reduce the supply of the volatile token and transfer value to its holders while stabilizing the stablecoin's peg.