In DeFi Derivatives, How Is Collateral Managed and Secured Differently than on a Centralized Exchange?

In DeFi derivatives, collateral is managed through smart contracts on a decentralized blockchain. Instead of being held by a centralized exchange, the collateral is locked in a smart contract vault.

This removes counterparty risk and provides transparency, as the collateral and liquidation logic are publicly verifiable on the blockchain, adhering to the principle of "code is law."