What Is the Role of the Volatile Governance Token in Maintaining the Stablecoin’s Stability?

The volatile governance token acts as the backstop or pseudo-collateral for the algorithmic stablecoin. It absorbs the volatility and is used in the arbitrage mechanism to adjust the stablecoin's supply.

When the stablecoin needs to be stabilized, the protocol often issues or burns the governance token to incentivize users to reduce or increase the stablecoin's supply.