Abra is a non-custodial wallet, and as such, users have direct custody of the bitcoin on their Abra wallet, through their own private keys. For any fiat (e.g., USD, EUR, PHP) or cryptocurrencies other than bitcoin (e.g., ETH, XRP) that Abra supports, we provide users with exposure to that currency via smart contracts on bitcoin/litecoin.
As an example, let’s say that you deposit 1 BTC into your Abra wallet, and decide to buy 10 ETH with it. At that point, Abra will create a smart contract that guarantees that you have the right to 10 ETH, regardless of the price fluctuations of either ETH or BTC. When you decide to exchange your 10 ETH 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.