Abra is a non-custodial wallet, and as such, users have direct custody of their natively supported coins on their Abra wallet, through their own private keys/recovery phrases.
For US users:
We have a hybrid model, meaning cryptocurrencies other than natively supported coins (e.g., XRP, DGB) that Abra supports, are held by trusted custodial partners. While natively supported coins (BTC, ETH, LTC and BCH) are still held on your device.
For international users (This will change after 1/31/20):
For any fiat (e.g., USD, EUR, PHP) or cryptocurrencies other than bitcoin (e.g., XRP, DGB) that Abra supports, we provide users with exposure to that currency via smart contracts on bitcoin/litecoin.
Please note, you will only receive exposure to the coin you invest in and not their forks, spoons, or any tokens distributed by holding that coin (e.g. holding Neo will not accumulate GAS).
As an example, let’s say that you deposit 1 BTC into your Abra wallet, and decide to buy 10 XRP with it. At that point, Abra will create a smart contract that guarantees that you have the right to 10 XRP, regardless of the price fluctuations of either XRP or BTC. When you decide to exchange your 10 XRP back into BTC, we’ll calculate how much BTC you should receive, based on the price changes.
The way we can guarantee this to our users without losing (or making) money, is that we hedge our users’ positions. We don’t take the risk, nor do our users. To hedge these positions, we perform a combination of buying and selling cryptocurrencies with different exchange partners.