What Is the Relationship between Inflation and the ‘Seigniorage’ Concept in Stablecoins?

Seigniorage is the profit made by a government (or protocol) by issuing currency (or tokens) where the face value exceeds the cost of production. In algorithmic stablecoins, seigniorage is the profit generated when the stablecoin is minted and sold for more than the cost of its backing (often zero).

This profit is often used to reward holders of the secondary stabilizing token, but excessive seigniorage can lead to hyperinflation of the stabilizing token, risking a "death spiral."