Network Reorganization Risks

Network reorganization, or reorg, happens when a node discovers a longer chain of blocks than the one it currently follows, causing it to discard its previous work and switch to the new chain. This can lead to the reversal of transactions that were previously thought to be confirmed, which is a catastrophic event for derivative settlements.

Reorgs are more common in proof-of-work systems during periods of network instability or hash rate fluctuations. To mitigate this risk, exchanges often implement a deep confirmation buffer, effectively trading off latency for safety.

In professional trading environments, reorg risk is treated as a major technical vulnerability that must be factored into the design of settlement engines.