Tellor is a decentralized oracle network on Ethereum. It aims to provide users with a way to fetch data for their smart contracts such as DeFi apps without relying on any centralized data streams. Here we will explore how the Tellor oracle works, along with reviewing Tellor Tributes (TRB) tokenomics.
What is Tellor?
To understand what a decentralized oracle network is, first you have to break down the problem Tellor is solving. An open and trustless blockchain such as Ethereum faces a design dilemma of being unable to access data on legacy systems. Smart contract capable networks are powering innovative financial contracts that are shaping a new DeFi economy: Yearn, NFTfi, or Uniswap – just to name a few. However, as soon as your app needs data that doesn’t exist on-chain, like the price of BTC/USD, fiat currency exchange rates, or even an election outcome. Then you have to rely on a third party to retrieve that data for you. This opens up many angles of concern: can we trust the third party? What if the data is placed maliciously? Is your application censorship resistant?
Tellor removes the need for any centralized party’s involvement in querying off-chain data. The Tellor Oracle does this by enabling data sourcing for your smart contracts through a network of competing miners.
How does the Tellor Oracle work?
The Tellor Oracle protocol works by providing infrastructure for Proof-of-Work miners to compete for fetching any data requests in the Tellor smart contract. As a result, developers designing contracts on Ethereum can query Tellor’s on-chain database for data such as pricing feeds.
Furthermore, Tellor incentivizes miners to provide data legitimately with the Tributes (TRB) token. As a result, this model for a decentralized oracle network remains secure via crypto-incentives.
TRB Token Review
Tellor Tributes play an integral role in the ecosystem with several use cases. Essentially, the goal of TRB’s tokenomics is to keep the oracle network secure.
- Payments: users need TRB tokens to request specific data.
- Rewards: Miners’ sourcing data for users are paid in TRB tokens.
- Security Deposits: Before miners can start competing and mining, they must place a deposit in Tellor’s smart contract.
- Penalties: If miners provide bad data then their rewards can be slashed through the dispute center.
- Disputes: TRB is required to open a dispute and also for voting over the validity of the data.
The total supply of TRB token depends on the network usage and mining rates.
If the network is at full utilization, the above graph projects how the TRB supply will inflate.
As the DeFi economy continues to grow, and more businesses adopt blockchain technology into their everyday operations, solutions for connecting smart contracts with real-world information will be paramount. Of course, Tellor faces strong competition in the form of Chainlink, DIA, or Band Protocol. However, there is no reason to believe that only one oracle network provider will be used for all cryptocurrency use cases.
Furthermore, with Tellor’s design focusing on decentralization and security over retrieving data requests at a high speed the technology is ready for more specialized and niche concepts. It’s also very refreshing to see a crypto project that started without a pre-mine or ICO.