Bug futures: business models

Recent question about futures markets on software bugs: what’s the business model?

As far as I can tell, there are several available models, just as there are multiple kinds of companies that can participate in any securities or commodities market.

Oracle operator: Read bug tracker state, write futures contract state, profit. This business would take an agreed-upon share of any contract in exchange for acting as a referee. The market won’t work without the oracle operator, which is needed in order to assign the correct resolution to each contract, but it’s possible that a single market could trade contracts resolved by multiple oracles.

Actively managed fund: Invest in many bug futures in order to incentivize a high-level outcome, such as support for a particular use case, platform, or performance target.

Bot fund: An actively managed fund that trades automatically, using open source metrics and other metadata.

Analytics provider: Report to clients on the quality of software projects, and the market-predicted likelihood that the projects will meet the client’s maintenance and improvement requirements in the future.

Stake provider: A developer participant in a bug futures market must invest to acquire a position on the fixed side of a contract. The stake provider enables low-budget developers to profit from larger contracts, by lending or by investing alongside them.

Arbitrageur: Helps to re-focus development efforts by buying the fixed side of one contract and the unfixed side of another. For example, an arbitrageur might buy the fixed side of several user-facing contracts and the unfixed side of the contract on a deeper issue whose resolution will result in a fix for them.

Arbitrageurs could also connect bug futures to other kinds of markets, such as subscriptions, token systems, or bug bounties.

Paper from WEIS

A trading market to incentivize secure software: Malvika Rao, Georg Link, Don Marti, Andy Leak & Rich Bodo (PDF) (presented at WEIS 2018)

Bonus link

Corporate Prediction Markets: Evidence from Google, Ford, and Firm X (PDF) by Bo Cowgill and Eric Zitzewitz.

Despite theoretically adverse conditions, we find these markets are relatively efficient, and improve upon the forecasts of experts at all three firms by as much as a 25% reduction in mean squared error.

(This paper covers a related market type, not bug futures. However some of the material about interactions of market data and corporate management could also turn out to be relevant to bug futures markets.)

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