Seigniorage Share Models

Seigniorage Share Models are economic designs for stablecoins where the protocol issues two or more tokens to maintain a price peg. Typically, there is a stablecoin intended to track a fiat currency and a secondary volatile share token that absorbs the volatility.

When the demand for the stablecoin increases, the protocol issues more stablecoins, and the profit from this expansion, known as seigniorage, is distributed to holders of the share token. If demand drops, the protocol may use the share token or a bond mechanism to contract the supply of the stablecoin.

This model relies on the expectation that the share token will capture the future value of the protocol. It is an attempt to create a decentralized stablecoin that does not require full collateralization.

However, these models are notoriously difficult to balance and have historically been prone to failure when confidence in the system wanes. They require precise control over the supply of both assets to maintain stability.