How do you gain reputation? When the system first launches there will be no signers with a reputation and all initial users would be gambling - i.e. the trust model would effectively be no better than a centralized exchange. You say there are enough signers where collusion and failure aren't a problem but this isn't a mathematically provable property. It's really just an assumption and using multi-signature to add more nodes isn't a magic bullet that will solve that. Consider Mercury Exchange, for instance. Mercury uses hash-locked smart contracts to solve the trust problem. It's an approach that will be entirely trustless when transaction malleability is phased out and best of all: it won't require a third-party to mediate. But your solution on the other hand relies on the assumption that enough oracles won't be corrupted for the multi-sig to hold which isn't a provable assumption; At least with Mercury you can reason exactly about the outcomes.
There's also something you said which is quite concerning: if enough signers go offline then the money can't be moved. That's really bad. So now you have a potentially insecure and unreliable financial system which you can't prove is secure or reliable since its based on elements entirely outside your control.
Improvements to the process.
I can think of improvements to most of these problems although I still think the overall design is bad even if it could work.
- If the owner were to control enough keys in the multi-signature then even if all the oracles were to be hacked the attacker would lack the leverage to steal coins (Your current design gives 100% of the power to an unknown party when this is strictly unnecessary.)
- It is possible to construct owner keys so some can be lost and recovered from the other keys. This would add more reliability for the user as they could store the keys across multiple devices, use multi-factor authentication, and a fault on one device wouldn't make their funds irrecoverable.
- You can use time-locked encryption to create a scheme which is 100% reliable even if all the oracles were to simultaneously explode, losing all keys. This would solve the reliability problem.
- If you're planning to have open participation for the signers then consider having only a subset of these unknown oracles used to protect the multi-signature deposits. A more typical trust model where you use legitimate companies like Reality Keys to function as the oracles would probably be more secure than having a pseudo-anonymous open system where anyone can join.
My paper covers most of these topics so feel free to borrow ideas, I don't mind. Relevant sections for your design are the Green Address, Contract Output, and Time-locked encryption sections.
Outro
tl;dr; Reputation systems are a terrible idea for financial systems. Your design will work but it is potentially insecure and I think it can be substantially improved.
