What is Tellor Oracle Protocol and how does it work?

Andrew Carr
| Editor:
May 28, 2024
6 min read

Tellor is a decentralized oracle network that plays a pivotal role in the functionality of smart contracts by providing them with high-quality, reliable real-world data. It operates on the principle of transparency and permissionlessness, which is foundational to its community-driven approach. 

Oracles Explained

Oracles are systems that deliver external data to smart contracts, which are otherwise isolated and lack direct access to outside information. Oracles bridge this gap by providing real-world data, enabling smart contracts to interact with external events and information. 

They come in various forms, such as software oracles that fetch online data, hardware oracles that obtain information from physical devices, inbound oracles that supply data to the blockchain, and outbound oracles that send blockchain data to external systems.

Oracles typically follow a process involving a data request from a smart contract, retrieval of the data from external sources, verification of its accuracy, and delivery back to the smart contract. This process allows smart contracts to execute their predefined logic based on real-world information.

Tellor Contextualized

The Tellor protocol incentivizes a decentralized network of data reporters and validators, fostering a system where data can be submitted by anyone and validated by everyone. This system of reporting and validating is central to maintaining the integrity and accuracy of the data provided to smart contracts.

The core of Tellor's operation involves reporters, also known as miners, who run Telliot, an open-source reporting client. This client enables these reporters to fetch data from various external APIs and other data sources, which is then fed into the Tellor ecosystem for consumption by smart contracts. 

This mechanism ensures that smart contracts can operate based on accurate and timely information, which is crucial for their successful execution.

Architecture Decisions in Tellor

Tellor's architecture is designed to be robust and scalable to meet the demands of the evolving DeFi landscape. The introduction of Architecture Decision Records (ADR) for the Tellor Layer signifies a commitment to continuous improvement and transparency in the protocol's development process. These records document the architectural enhancements and provide a clear roadmap for the protocol’s future.

The decentralized nature of Tellor means that the protocol does not rely on a single point of failure. Instead, it utilizes a network of reporters who are motivated by incentives to provide accurate data. This distributed approach to data reporting is fundamental to the protocol’s design and is what sets Tellor apart from other oracle networks.

To participate in the Tellor ecosystem as a reporter, users need to hold a stake in TRB, Tellor's native token. Holding this stake and running the Telliot client allows users to contribute to the network by providing data. This democratized approach to data contribution ensures a wide participation base, enhancing the decentralized aspect of the protocol.

In comparison to other oracle solutions, Tellor’s unique proposition lies in its open and inclusive reporter system. Unlike other networks like Chainlink, where node operators are selected by the network's central team, Tellor allows any participant with enough TRB tokens and the necessary hardware to become a reporter. This difference underscores Tellor's commitment to a permissionless and inclusive network. 

Role of Reporters in Tellor

The Tellor oracle network hinges on the active participation of its reporters (commonly referred to as miners), who are tasked with supplying reliable data to smart contracts. These reporters are the linchpin that connects the Tellor protocol with the real-world data required for the accurate functioning of decentralized applications on the blockchain.

Reporting Data in Tellor

Reporters play a pivotal role within the Tellor ecosystem by bridging the gap between data consumers and off-chain internet-based data sources. Through the Tellor protocol, these reporters are incentivized to provide accurate and timely data, which is crucial for the execution of smart contracts on the blockchain.

The process typically involves reporters running Telliot, the open-source reporting client of the Tellor protocol. Telliot facilitates the provision of various types of data, including but not limited to market data from APIs and other custom data sets. Reporters submit this data to the Tellor network where it gets verified and, once validated, is made available to smart contracts.

The protocol operates with a network of reporters who compete to submit this data onto Tellor blocks. This competitive aspect ensures that the data provided is both timely and accurate, as reporters vie for the opportunity to earn TRB, the native token of Tellor, as a reward for their contributions.

Becoming a Reporter

Becoming a reporter for the Tellor protocol is a permissionless process, meaning that anyone with the interest and capability to run the Telliot client can participate in the network. To engage in data reporting, a user must stake a certain amount of TRB tokens. This staking serves as a form of collateral, ensuring that reporters have a vested interest in maintaining the integrity of the data they provide.

The steps to become a reporter are straightforward:

  1. Acquire TRB tokens, which can be purchased on cryptocurrency exchanges such as best coins on binance launchpad.
  2. Download and configure the Telliot client, adhering to the guidelines provided by the Tellor community.
  3. Stake the required amount of TRB to participate in data reporting.
  4. Begin providing data to the network, responding to off-chain data requests in real-time.

By fulfilling these requirements, users can contribute to the Tellor network's data accuracy and reliability, gaining the opportunity to earn TRB tokens for their efforts. This open model fosters a diverse and robust network of reporters, which is essential for the Tellor protocol's objective of delivering secure and decentralized data to smart contracts.

Security Measures in Tellor

Tellor has implemented several security measures to safeguard the data validation process within its network. One such measure is the utilization of an amalgamation approach where multiple decentralized oracles are layered or the median of a group is used to determine the most accurate data. This method enhances security by mitigating the risk associated with relying on a single oracle solution.

Another key feature of Tellor's security measures is the decentralized network of miners who compete to publish data on Tellor blocks. These miners provide crucial market price details of various assets for open finance applications on the blockchain. 

However, unlike some other oracle networks, Tellor introduces a 10-minute delay between each block due to the proof-of-work mining process, which prioritizes security over real-time data provision.

Tellor also offers a Dispute Center, an innovative platform where independent users can challenge the validity of data submitted by miners. This feature is integral to ensuring the trustworthiness and reliability of the data provided by the network. Disputes are handled through a transparent and democratic process, allowing the community to weigh in on the accuracy of reported data.

Tellor Token: TRB

TRB is an ERC-20 utility token that plays multiple roles within the Tellor ecosystem. It incentivizes reporters, who are rewarded with TRB tokens for providing accurate and timely data to the network. Users requesting data submit their requests along with TRB tokens as payment. 

Miners are required to stake a certain amount of TRB tokens as collateral to participate in data reporting, ensuring honest submissions. Additionally, TRB holders can participate in governance decisions, shaping the future of the Tellor network.

Due to its essential functions within the network, TRB has potential investment value. As the Tellor network grows and its adoption increases, the demand for TRB is likely to rise, potentially boosting its market value.

Advancements in Tellor Technology

As part of its commitment to ongoing improvement, the Tellor team is prioritizing advancements in the protocol's technology to uphold its values of decentralization, adaptability, and data reliability. These enhancements are expected to fortify the protocol against the challenges of data validation and security in the DeFi sector.

The technological upgrades aim to bolster the protocol's capacity to handle an array of data types with precision and efficiency. By leveraging the strength of the Cosmos SDK, Tellor's forthcoming Layer will enable a consensus among validators to verify data accuracy. 

This development is particularly significant for its potential to increase validator participation and offer adaptable governance frameworks, thus improving security and data reliability within the protocol.

Tellor's commitment to technological progression demonstrates its dedication to providing secure, transparent, and high-performance data solutions that meet the needs of the smart contract ecosystem. As Tellor advances, it continues to solidify its position as a key player in the oracle network domain.

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