But if the feed just provides sub-optimal data, or even starts providing outright lies, how does the scheme incentivize people to get back on the right track? It feels like once we're all pulling from Feed X, anybody who tries to deviate from Feed X is going to get spanked, even if Feed X is now full of shit.
I haven't read the whitepaper yet, so I'm pulling this out of my butt, but...what if we made a contract that said, "On February 20th, Feed Y will be more trustworthy than Feed X," where Feed X is the incumbent feed that you feel has been giving bad data?
What if there are 3 feed services and contracts were settled based on the feeds' majority opinion?
What if there were 10 services and contracts are settled on a supermajority of 80% of feeds? Otherwise, if you don't have 80% agreement, then the contract is a draw?
Like I said I haven't thought this through much. Maybe it's best to just dismiss my ideas.
There are two "solutions" to the feed problem: consensus/diversification, and incentivization.
The first involves either spreading your bets among different feed operators, or betting on a (trustless) "average" of feeds. If averaging, ideally the algorithm should weigh feeds somehow (e.g. by volume or transaction number), and creating a bet should have a nontrivial cost (to prevent fake volume).
The second involves incentivizing operators to report values "close" to the consensus. This could come naturally in the form of participants choosing one operator over another (we assume in this case that feed operators are "fungible", even though that isn't the exact definition), or users betting on a consensus value, with operators that report values "closer" to the consensus getting a larger share of the bet fees. As feeds ostensibly apply to actual truths about the world (as opposed to predictions, estimates, etc), I don't think the "lemming problem" is an issue here. On the other hand, I'm not sure how resistant this scheme is to cartels, but for any easily verifiable value (GDP, stock market index, temperature), collusion and cheating should be easily detected.