No matter the denomination, the contracts will be automatically redeemed before some of the parties is insolvent.
The problem with this is that the contracts can expire before the contracted date, but the funds in escrow for the other part are the maximum you should expect to win. If you're losing, you can always add more funds to avoid that the contract gets redeemed.
In fact you don't even have to liquidate the contracts when they are become "insolvent", both parties know the funds that are in escrow from the other party, they shouldn't expect to gain more than that.
I'm just noting that the contracts could be denominated in a stable currency. The currency doesn't have to even exist, it can be defined as a basket of commodities or the dollar plus the increase in CPI from shadowstats. It doesn't have to be a currency. The contract could have rice vs gold or mac vs google.
I still think that the hardest part is to define what information must the miners include in the block and how is it going to be calculated that a block is valid or not.
I think I understand what you are suggesting. No counter-party risk is possible because the contract is liquidated before that can happen when bitcoin prices are diving.
While I would love to see something like this implemented, it does not address my primary desire of transferring risk from users who want stability to users who want to speculate.
I like your idea for a distributed option market, but it requires many changes and some of them (the voting for the input of information from markets) are very risky. You need to move coins from an address to other with the only authorization from the original address of the contract, and the result of the contract depends on voting.
I have to re-iterate, the result of the contract does not depend on voting at all. The external exchange rates only affect the fee structure when trades take place, encouraging people to trade near the external spot price. The actual trading price is determined by supply and demand within the bitcoin network. There is pretty much nothing to gain from taking over 51% of the bitcoin network hashing power to force a different exchange rate into the block chain. All you would accomplish would be to annoy people by changing the fee structure slightly. Much more lucrative uses of that hashing power can be found.