How Does an Option Contract Use the Principle of a Smart Contract?
While traditional options are contracts between two parties, a smart contract can automate the execution of an option. A decentralized options platform can use a smart contract to hold the collateral, verify the underlying asset's price via an oracle, and automatically settle the option when it expires or is exercised, ensuring trustless execution.
Glossar
Option Contract
Derivative Foundation ⎊ An Option Contract is a formalized agreement granting the holder the right, but not the obligation, to buy or sell an underlying asset, such as a cryptocurrency, at a predetermined price on or before a specified future date.
Smart Contract
Code ⎊ The contract is fundamentally self-executing code deployed on a distributed ledger, embodying the terms of the agreement in an immutable format.
Decentralized Options
Architecture ⎊ Decentralized options represent a paradigm shift in options trading, moving away from centralized exchange reliance towards blockchain-based smart contracts for execution and settlement.