What Is 'Collateralization' in the Context of Smart Contract-Based Derivatives? ⎊ Path

What Is ‘Collateralization’ in the Context of Smart Contract-Based Derivatives?

Collateralization refers to locking up assets within the smart contract as security to cover potential losses. This is a mechanism to ensure that the obligations of the derivative contract can be met upon settlement.

For a short option position, the seller must post collateral to cover the maximum potential loss. It is held on-chain and automatically used for settlement, guaranteeing payment.

How Does Over-Collateralization Mitigate Systemic Risk in DeFi?

How Does a Lost Private Key Affect a User’s Assets Managed by a Smart Contract?

What Is the Purpose of ‘Margin’ in Both Traditional and Smart Contract Derivatives?

How Does the Concept of “Staked Capital” Act as Collateral against Malicious Behavior?

What Are the Consequences of a Collateralized Position Falling below a ‘Liquidation Threshold’?

What Is the Concept of ‘Collateralization’ in a Decentralized Options Vault?

In What Financial Derivative Scenario Might a Broken Hash Function (Due to Preimage Attack) Pose a Risk?

How Does Novation Simplify the Netting of Obligations between Multiple Market Participants?