Interesting ideas here...
I am tempted to create a feed that is completely random (perhaps even using something like the data from http://random.org)
Or perhaps have a puzzle feed, that will reward anybody that can figure out the algorithm.
Could this be used as part of a prediction market?
What are the practical uses for this?
Of course, you could simply use the random feed and tell everyone it is a puzzle
An entirely random feed wouldn't be stable for shorters though :/
True, like you said in the other comment, maybe just make the direction random. If you make it a puzzle, people will still start investing in it. It might actually make an interesting psychological study, to see how people project a pattern onto noise.
The puzzle would have to be procedurally generated so as to prevent the price feed publishers from possible insider trading (If they know the solution they can act upon this insight or share this info with a select few).
What would the puzzle frequency be? One per day to determine the next day's price direction? Or multiple puzzles per day? What kind of puzzle?
For a random direction we could have the feed producers monitoring a hash somewhere that is entirely unpredictable, the characters in the hash determine the outcome for the feed price (range of letters/numbers for positive/negative, potentially additional characters to determine the size of the price feed change)?
I see that the puzzle idea gets more complicated than I thought.... Will have to give it some more thought.
As for the random idea, there are several services that provide random feeds based on natural phenomena, which ensures a high degree of true randomness. Like you mentioned, we would need an algorithm to translate that into movement
If you were to provide a price feed which was entirely random that would be quite unstable, however if you were to use random.org to decide whether to increase or decrease the price feed each day that would be far more stable and would somewhat be a prediction market for shorters.
I thought about a puzzle feed, but it would need to be difficult, automated and determine whether the price feed increased or decreased on that day.