Clear DefinitionsSeigniorage (Tokenomics)
1 min read
Pronunciation
[sen-your-ij]
Analogy
Seigniorage is like the profit a mint makes by producing coins at lower cost than their face value.
Definition
The profit a protocol earns from issuing new tokens, often used to fund operations or distribute to stakeholders.
Key Points Intro
Seigniorage drives protocol funding via:
Key Points
Mint margin: Difference between token value and minting cost.
Treasury accrual: New tokens allocated to protocol reserve.
Incentive distribution: Used for staking rewards or buybacks.
Monetary expansion: Controls inflation to support growth.
Example
A stablecoin protocol mints seigniorage tokens when demand rises and allocates them to a rewards pool for stakers.
Technical Deep Dive
Seigniorage module in contract calculates `newSupply = totalSupply × inflationRate`. Mints `newSupply – totalSupply` to treasury address. Governance can direct treasury-dispensed seigniorage via proposals.
Security Warning
Excessive seigniorage can dilute holders and cause inflationary spirals; cap mint rates carefully.
Caveat
Seigniorage depends on token demand; low demand with high minting leads to price collapse.
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