The Rise of DeFi: Tellor – The Decentralized Oracle for DeFi / Tellor Tells us Whats Wrong
Tellor describes themselves as the “Decentralized Oracle for DeFi. An easy to implement solution to get high-value data into your smart contracts.”
Though the most well-known oracle project is ChainLink, Tellor is aiming to solve a specific, and different, problem than ChainLink.
An Oracle’s job is to get real-world off-chain data and submit this information to a blockchain for use by smart contracts. Typically this data is provided by a third party service. Though DeFi is a hot term in crypto right now, Tellor identifies a pain point the industry faces that remains unsolved.
“One of the biggest problems limiting decentralized finance growth is the lack of a secure and decentralized price feeds. Tellor aims to enable the growth of the DeFi industry by providing a secure source of high quality pricing data.”
Today, for smart contracts on Ethereum to utilize off chain data, they must apply one of the following–none of which are good:
- Manually feed the data to the contract—the data can be easily compromised and is not a trustless mechanism
- Trust a centralized party to provide the data—efficient, but not trustless
- Rely on a group of trusted known parties (Proof-of-Authority consensus)—not trustless
- Schelling Point systems (incentivize users to provide data and reach consensus)—unnecessary for simple price data, can lead to long waiting times to reach consensus, and confidence on the data can erode if there is a conflict of interest
The Tellor Oracle provides an efficient, trustless, and decentralized alternative for off-chain data. It provides the infrastructure for decentralized applications to query off-chain data by properly incentivizing miners to provide data.
Tellor’s team built Daxia, which is a product that uses smart contracts on Ethereum to issue tokens that represent the long and short side of an asset. Daxia, however, relied on centralized Oracles to provide the price data points to settle contracts. The team desired a fully decentralized protocol, but found there were no decentralized oracle solutions. Hence, Tellor.
For those unable to understand how Tellor may differ from Traditional Decentralized Oracle Solutions:
“Our competitors are aiming to allow any smart contract to query almost any piece of off-chain data. We’ve narrowed our aim at allowing for our smart contract to query price data every ten minutes. It’s a subtle difference, but it allows us to make some stronger assumptions about security and will hopefully allow us to launch and be truly decentralized a bit faster than them.
“To summarize, we focus more on putting higher value pieces on chain with more measurable security qualities. How we plan to do it is by utilizing proof-of-work and staked miners to get off-chain information on to Ethereum.”
Projects that are able to clearly identify issues and begin developing clear plans of action typically perform better in executing on their goals.
The whitepaper states:
“The Tellor Oracle is an on-chain data bank where miners compete to add data points. To create a properly incentivized system, Tellor mints a native token, “Tributes.” Parties pay Tellor Tributes to submit a request for data to the Oracle. Based upon the reward assigned to each request, the Oracle selects the best funded query every ten minutes to create a challenge for miners to solve. Each query collects specific data (e.g. ETH/USD or BTC/USD prices) and makes it available on-chain. The Tellor Tributes are used to pay fees to miners, who add the official data point, and is used to secure the network via a staking requirement for miners and a data validation voting system. Five submissions are necessary to determine the official data point.”
“The Tellor Oracle utilizes a delegate proxy structure for its contracts, deploying two smart contracts: 1)TellorMaster.sol allows delegate calls from Tellor.sol to allow for data storage. TellorMaster holds the historically mined values that contracts can read from. 2)Tellor.sol holds and distributes the token supply, informs miners which values to submit, and has a built-in methodology for challenges. It provides the miners with necessary fields for data collection, allows miners to submit the proof and off-chain data, sorts the values, and allows users to retrieve the values and bid on which data series is mined next. The contract targets for new values to be mined every 10 minutes via difficulty adjustments. Which data series is mined is determined by which series has the greatest “tip” going to the miners.
There are two primary ways of being rewarded as a miner for Tellor:
- Miners are given a base reward per every successful submission.
- Tips are given to miners to incentivize the selection of a query – similar to paying higher gas fees to get a transaction cleared faster. Higher tips means miners are more likely to take a request faster.
To begin mining tellor, 1000 Tellor Tokens are required to participate in the network.
The Tellor Oracle implements a ten percent developers share (dev share). This revenue stream will be managed by the Tellor team and utilized in the following ways:
- Ensure community participation and accurate voting for disputes.
- Create and distribute efficient mining software.
- Market and Promote the Tellor Oracle to ensure adoption which leads to greater mining incentives.
- Create developer tools for utilizing the Tellor Oracle in production deployments.
- Fund research and improvements to the oracle.
In conclusion, Tellor:
- Reduces the risks associated with single-party oracle providers who can cut access to API data, censor certain users, or manipulate reported values for private gain.
- Build the foundation for a superior oracle system where data is derived from a distributed set of participants which have both an economic interest and a stake in the validity and success of the oracle data.
- Create an effective, secure, and incentivized system for off-chain data which disincentives dispersion and adversarial submissions.
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