Explain the Concept of ‘Collateralization’ in a Decentralized Options Protocol

Collateralization ensures that the obligations of the option seller (writer) are met if the option is exercised. The seller must lock up an asset (the collateral) in the smart contract.

For a call option, this is often the underlying asset; for a put, it's the stablecoin needed to buy the asset. This removes counterparty risk, as the collateral is held trustlessly on-chain.