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

Collateralization in a decentralized options vault refers to the mechanism where assets are locked in a smart contract to back the option contracts being written or sold. The collateral ensures that the option seller (writer) can meet their obligation if the option is exercised.

The vault automates the management of this collateral, often employing strategies to maximize yield while maintaining the necessary coverage for the outstanding options.