A stablecoin works by having a reserve asset (usually a fiat currency, gold, or other cryptocurrency) to back up the value of the stablecoin. This reserve asset is typically held in an escrow account and overseen by a custodian to ensure that it is secure and available to back the value of the stablecoin. The value of the stablecoin is then determined by the market and is kept stable through the use of algorithms, smart contracts, and other mechanisms designed to maintain its value.