I just answered this question on /r/bitcoin and I think its the shortest answer I have ever figured out how to deliver to answer it. I thought I would share it. Feel free to use as you see fit.
The easiest way to understand it is to consider the COMEX can have a wheat futures contract without having any wheat on hand. How do they do it?
Lets say I think the price of what will fall and I want to profit. I can sell wheat today, and then buy it later for cheaper and I can profit by selling high and buying low. But how can I sell that which I don't have? I can place $'s as collateral with the exchange. If I sell a bushel of wheat at $200, the purchaser now has an IOU from me that says I owe him 1 bushel of wheat in the future. If the price goes up and I have to buy a bushell for $250, then that $50 loss I made is taken from my collateral. Notice I both bought and sold wheat and yet there was no wheat... just $'s. In this case, it is said that the settlement instrument was $'s.
So what if rather than have a wheat futures contract settled in $'s. We had a dollar futures contract settled in cryptocurrency?
Instead of selling a bushel of wheat, I sell $1. I place cryptocurrency on an exchange as security for the buyer. Now in the future I owe the buyer $1 no matter the excahnge rate. Either the rate moved up an I made a profit, or the rate moved down and money was taken from my collateral and I made a loss. Either way, the buyer receives $1 in the future no matter the exchange rate.
Therefore the buyers fully securitized IOU for $1 is always worth $1. ie: it has a stable value. And it is always backed by collateral (the cryptocurrency held on the blockchain.) Hence the $1 IOU is fully securitized and has no counter party risk.
This is what bitshares has achieved.