In a Tokenized Options Protocol, How Is the Collateral or Margin for the Contract Managed by the NFT’s Smart Contract?

The options smart contract acts as a neutral custodian. When the short position is opened, the required collateral (margin) is locked within the contract.

This collateral is secured by the terms encoded in the NFT. It remains locked until the option expires or is exercised, at which point the contract automatically releases the collateral to the appropriate party based on the outcome.