What Is the Role of the Seigniorage Token in a Dual-Token Algorithmic Stablecoin System?

The seigniorage token, often the governance token, acts as the volatile, secondary asset used to absorb the stablecoin's volatility and maintain its peg. When the stablecoin trades above its peg, the protocol mints the stablecoin and uses the profit (seigniorage) to buy back and burn the governance token.

When it trades below, the governance token is sold to buy back and burn the stablecoin.