I found an article today (see some extracts quoted below) containing some interesting explanations about how stablecoins work.
(These explanations don't apply to all stablecoins - for example, they don't apply to precious metals 1:1 backed stablecoins - but that's another story.)
The author's point is that "stablecoins" is the wrong word, as they are not stable in general but only in relation to their underlying asset-reserve.
That's why, he says, they shouldn't be called stable-coins but pegged-to-coins.
"First of all, stability is a feature rather than a category. Generally speaking, most stablecoins belong to the category of asset-backed tokens. In most cases, the assets are held in a reserve, and if the market value of the coin were to drop, the reserve assets are used to buy back the coin until it regains the target price level.
Similarly, more coins can be released from a reserve if the demand for the coin warrants. A reserve ratio determines how much of an asset is needed in order to support the stability of the price of a coin. Obviously, a 100% (or greater) reserve ratio should preserve a 1:1 ratio of the coin to the underlying asset, thereby theoretically allowing a coin to maintain stability.
The reason why “stablecoin” is a bad name is that there are literally no assets in history that have been known to exhibit a stable value over time — they are only stable relative to the value of another asset. Because of this, there isn’t any universal way to establish a stable threshold of value that is long-lasting.
The U.S. dollar, for example, isn’t itself stable over time, as the purchasing power of USD has dropped by 95% since 1913.
This decline accelerated in 1971, when the dollar ceased to be backed by gold and silver. Because of this, a cryptographic asset tied to the price of the U.S. dollar (or any other asset) should not be considered a “stable” coin but rather a “pegged coin” — meaning that its value is pegged to the value of something else."
https://www.zerohedge.com/news/2019-09-01/us-china-trade-war-and-its-effect-cryptocurrencies