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How Does a Decentralized Finance (DeFi) Options Protocol Handle Collateral for Margin Trading?

DeFi protocols use over-collateralized smart contracts for escrow, with automated liquidation via code logic.
Greeks.Live15.11.25

How Does a Decentralized Finance (DeFi) Options Protocol Handle Collateral for Margin Trading?

DeFi options protocols typically use smart contracts to hold collateral in escrow. The collateral is often over-collateralized to account for the volatility of the underlying assets and the lack of a centralized intermediary.

Liquidation is handled automatically by the smart contract when the collateral ratio drops below a pre-defined threshold. The collateral can be the underlying asset or a stablecoin, and it is released only upon option expiration or exercise.

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