What is Tellor
Tellor was created in response to the need for decentralization, and in particular the limits of growth in decentralized finance, related to issues of secure and decentralized price feeds.
Tellor Oracle is an on-chain database, where miners compete to add data points. In order to create a properly incentivized system, a native token "Tributes" was coined. Parties pay Tributes to send a data query to the oracle, and based on the reward assigned to each query, the oracle selects the most highly funded queries and every ten minutes incentivizes miners to a challenge to solve. Each query collects data (e.g. ETH/USD prices) and makes it available on-chain.
Hybrid consensus algorithm
Tellor Tributes, are used to repay the miners for their work, they are also used to protect the network through a requirement of staking the miners and a data validation voting system. Five comments are required, to make the data point official.
With a hybrid structure, Tellor Oracle, creates a minable Proof of Work (PoW) token, along with the PoW solution, miners are required to provide off-chain points. The first five miners, who provide the off-chain resolution and data point, are rewarded by the newly minted tokens and payment from the specific query.
In addition to the security provided by the PoW, miners are required to deposit a portion of Tributes tokens, in order to discourage those intent on "cheating the system".
The hybrid use of the two solutions, is the strength of Tellor, that the security system offered by PoW, alongside the staking, with tokens deposited as collateral, that miners could lose in case of "misbehavior".
Tellor Oracle implements two types of smart contract:
Tellor Master.sol, enables data storage and contains historically mined values from which contracts can draw.
Tellor.sol, holds and distributes the supply of tokens, provides information to miners about which values to send, allows for the sending of proof and data off-chain, allows users to retrieve values and bid on which data set will be mined next, and finally predicts and adjusts mining every ten minutes, through difficulty adjustments.
Let's analyze the basic flow for adding and retrieving data:
The user sends a query to Oracle using the Tributes token, to incentivize miners to choose this query, over others.
Other users who want the same data, pay for this data set, to further incentivize miners to select it.
Every ten minutes, Oracle selects the query with the best funding and provides a new resolution challenge for miners
Miners send their PoW resolution and off-chain data point to the oracle contract, the contract sorts the values and as soon as five values are received, the official value ( the median of the five), is selected and sent to the chain. Miners are then assigned payment.
Anyone who holds Tellor Tributes, can challenge the validity of a mined value within one day of its extraction by paying a dispute fee. In the following week, the holders of Tellor tokens, will vote on the validity, if found false the miner will lose its share, otherwise, ie the vote finds the value correct, the dispute fee is awarded to the miner reported.
Tellor is a contractual mechanism, which in a competitive and decentralized, allows you to achieve Oracle data.
The main use case, concerns stabelcoins, off-chain data using the ETH/USD price, in order to maintain an anchor between the two currencies.
But the use cases are many:
Exchange rate data, allowing you to create financial contracts without trust.
Cross-chain information, collecting current block numbers on a given chain.
Statistical/pseudo-statistical data, recording and indexing various identifiers (country codes, currency codes).
Damage verification, identifying what the total net damages are for insurance contracting purposes.
Pseudo-random number generation, e.g. selecting a winner in a smart contract on a distributed lottery.
We have seen how the development of Web 3.0, is offering new contexts and new possibilities, the user becomes both spectator and author, the new web will make the internet more open and decentralized.
In this scenario, a growing attention and importance are gaining decentralized finance platforms (DeFi), an "open source" system that through dApps, allows the development of a variety of projects and solutions, in order to make traditional finance, as we know it, more transparent, secure and democratic.