Protocol Hard Forks

A hard fork is a radical change to a network's protocol that makes previously invalid blocks or transactions valid, or vice-versa. This effectively creates a permanent divergence in the blockchain, resulting in two separate versions of the network.

In the context of derivatives, a hard fork can occur due to fundamental disagreements on protocol direction or following a catastrophic security event. It serves as the ultimate mechanism for adaptability when consensus cannot be reached on necessary changes.

However, it can cause significant market disruption, split liquidity, and create confusion regarding the value of derivative contracts on the different chains. It is often considered a last-resort measure for protocol evolution.