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What are these types and what are their functions?

The most popular type of stablecoin is one that is directly pegged to fiat currency at a 1: 1 ratio. We also call this fiat-backed stablecoins. The central issuer (or bank) stores a certain amount in reserve currency and issues a proportional amount of tokens.

For example, an issuer might have one million dollars and distribute one dollar for each of the million tokens. Thanks to this, users can exchange their cryptocurrencies for tokens at any time, the value of which is equivalent to the US dollar.

In this case, there is a high counterparty risk that cannot be mitigated: in the end, you always have to trust the issuer, while the user himself cannot determine exactly whether the issuer of stablecoins maintains its reserve fund.

At best, such a company can try to be as transparent as possible when it comes to auditing, but the system is still far from such a property as credibility.