In traditional economics, seigniorage is the profit generated by the government by introducing new currency -- the difference between its face value and the cost it took to produce it. As Terra's economy features an dynamic self-adjusting monetary supply, driven by algorithmic monetary and fiscal policies written into the protocol, the concept of seigniorage also exists here.
Unlike in traditional money systems where there is a cost to printing money (i.e. paper and metal coins for physical tender), the cost of issuing new Terra stablecoins is near zero. With the benefit of being completely digital, the Terra protocol is able to instantly capture the excess value from Luna swaps into Terra as seigniorage for applications. Currently, this scheme is used to power the retail payment gateway CHAI, the first dApp powered by Terra, responsible for funding cashbacks and other discounts.