Smart contracts are a set of codes lines that enable fixedness in the execution of orders in a blockchain network. The system works as simple as if a certain action happens first, then it must execute a second action.
But what if the first action needs a certain piece of information that is not available on the blockchain? In this case, this programmable mechanism fails to execute the orders. Hence, smart contracts are seemingly not as “smart” as the name suggests, because they still need other resources to provide data on-chain, especially price feeds.
This is where oracles step in the game by providing real-world data into the blockchain. The issue is most oracles are centralized, which leaves plenty of room for possible manipulations and other malicious maneuvers regarding information.
In this sense, Tellor is a project solely focused on providing a reliable decentralized oracle powered by a PoW (Proof-of-Work) system.
The Oracle Issue
Despite all the innovation brought by automation and programming, even decentralized finance still needs a touch of centralization to function perfectly, given the number of centralized counter-parties that provide data in the blockchain.
The idea, however, does not please both DeFi entrepreneurs and users, as the golden rule of an alternative financial system based on smart contracts goes in the opposite way of any type of centralization.
Some projects managed to attack this issue effectively, such as Chainlink, which is a decentralized oracle network solution. But as variety is one of the essentials of a decentralized environment, other projects started to appear at the scene to provide oracle solutions based on either similar or quite different mechanisms.
That is the case of Tellor, which has already impacted the crypto scene, especially due to the popularity of their native Tribute (TRB) token.
What Is Tellor?
Tellor is an Ethereum-based decentralized oracle, which provides a decentralized and trustless alternative for smart contracts to interact with and obtain real-world data.
Focused on simplicity, the platform utilizes a hybrid PoW (Proof-of-Work) plus staking model. In this system, miners have to stake Tribute (TRB) tokens to able to mine. The secret is they also provide an off-chain data point (BTC/USD, for instance) along with the PoW solution.
The rewards go to the first five miners to provide the PoW solution and off-chain data point. Meanwhile, the median becomes the official value, and the value is issued for on-chain contracts to use.
But how this system works in case of a dispute of value? Anyone holding TRB tokens can dispute the value within 144 blocks after being mined for a fee. The value then goes to dispute and any TRB holder can vote on its’ validity over the next two days.
The vote results will determine how the question will be settled. If the result determines the value was invalid, the reporting party is rewarded with the miner’s stake. On the other hand, if the result determines the value was valid indeed, the wrongly accused miner gets the reporting fee.
Hence, Tellor participants can request the value of off-chain data points and miners compete to add this value to an on-chain open-source data bank (Ethereum smart contracts). The platform uses economic incentive mechanisms to reward honest data providers and punish malicious behavior, ensuring a healthier and sustainable ecosystem.
Dig Into It
Tellor users submit their queries using “tips” (TRB tokens) to incentivize miners to choose their query first, over other submissions.
Other users who want the same data tip this data set to further incentivize selection by miners. So, every five minutes the best-funded queries are selected by Tellor smart contracts, providing a new riddle for miners to solve.
Miners then start submitting their PoW solutions and off-chain data points to the Tellor contract. The contracts sort the values just as they come, and once five values are received, the median of these five is selected and saved on-chain.
The mechanism then allocates miners their payout, which includes a base reward and tips. These data update cycles are called blocks in the platform’s jargon. It is also important to remember that each miner address cannot win successive blocks.
As stated before, any TRB holder can dispute the validity by paying a dispute fee.
At Tellor, users incentivize miners to retrieve their value by “tipping” to ensure the query they are interested in is mined. In this sense, while half of the tips are paid out to the five winning miners every block, the other half is removed from circulation.
The platform believes in scarcity as a key to ensure reliability. Recently, the time target of the oracle was upgraded from 10 minutes to 5 minutes, which means there are 288 queries per day, on average.
Who Is Behind The Project?
The project was co-founded by Mike Zemrose, Nicholas Fett (CTO), and Brenda Loya (CEO). The idea was born out of a “spin-off” of a previous project called Daxia, a former decentralized derivatives protocol.
The group saw that Tellor had the potential to be something special, so they decided to go further with Tellor rather than Daxia.
Connect with the team and talk on Discord.
As the whole team has a background in data reporting and was located around Washington, DC, they saw oracles as a strong necessity given the regulatory status of the country and the state of the ecosystem.
Co-founder Mike Zemrose recently stated that Tellor is built foundationally different from Chainlink and other oracles. Instead of focusing on speed and instant queries on-demand, Tellor focuses more on security and decentralization primarily.
Despite the ever-growing number of DEXs, derivatives platforms, lending protocols, and liquidity pools, it is plain to see that there are not many projects focused solely on building decentralized oracle networks looking at the current DeFi landscape.
In this scenario, Tellor was born as a permissionless community of data providers, validators, and token holders to provide reliable real-world data on-chain. The platform uses a PoW-based system where staked miners compete to retrieve off-chain pricing data, incentivized by Tribute (TRB) tokens.