In a Co.Invent exclusive interview, we sat down with Nicholas Fett, Chief Technical Officer of Tellor (backed by Binance Labs and Maker), who candidly spoke with BountyBase about everything from how the crypto derivatives market has changed over the past 5 years, to the launch of Tellor Core MainNet, to how the USA’s regulatory hurdles helped build derivatives markets in places like Hong Kong.

Question: How has the crypto derivatives market developed in the past 5 years?

Answer: Five years ago was before Ethereum and any derivative project of note, so it’s come a long way, to say the least. I’ve been sort of disappointed in the US, (specifically our regulatory regime), in how its played out. At the moment, you have a few different players in crypto derivatives. There’s the regulated US firms (Ledger X, CME, Bakkt), the crazy overseas guys, and then the up and coming DeFi projects.

To summarize US regulations for derivatives, its illegal for US customers unless a company registers with the CFTC. The only problem is that the regulatory hurdle is a gargantuan behemoth that few sane companies would even attempt.

You can see Ledger X’s journey and how they spent years of back and forth and millions of dollars all to get a fully collateralized Bitcoin derivative out the door. If they had given the US the middle finger when they were thinking of starting, they could have moved to Hong Kong and beat Bitmex to market. Bitmex and other wild west platforms have been the big beneficiaries of the US policy, as they offer unregulated products with 100X leverage, and slick easy-to-use platforms to grab users.

Like most things in the crypto space at the moment, the derivatives scene is primarily for gambling, so these products that serve no purpose other than making the house money see huge swaths of demand because there aren’t any regulated options out there that provide decent exposure for retail customers.

Oh and the last one, DeFi, is super exciting and the future. I think we’re going to see crypto companies begin using derivatives to hedge some risk and it’s going to be super cool if they can do it on a platform that was built to get rid of the middlemen we’ve focused on so much over the past few years.

Q: How big do you think the SEC’s DAO Report was for cryptocurrency 2 years ago?

A: It doesn’t really matter. They’ve all sort of just been a big deal for lawyers and the scammers. The honest projects who are building something that makes sense, trying to fund it honestly, and actually launch their project never had anything to worry about and to be honest, they never did worry about it. You just saw a whole bunch of companies in 2015–2017 that either had a good project and wanted to squeeze in a token to monetize it quickly, or they were just broad ideas that companies oversold to get in the gold rush.

The SEC report basically said that those were the companies that need to worry and the message is still the same. Besides, the core use case for crypto is getting around regulations. If you’re building something that can get shut down because of how you funded it, you’re probably doing it wrong.

Q: Can you describe Tellor and what a decentralized oracle is so that a 10-year old can understand it?

A: Ethereum is like a computer that runs programs. Unfortunately, it’s like a really old, slow computer that can’t access the internet. So right now, for those programs on Ethereum, if they want to know something about the outside world (e.g. the price of a stock, an interest rate, the weather, a sports score, or any other conceivable data point), they rely on someone typing that information into the computer.

That person typing in the data is the oracle.

Now having just one person is obviously bad, since that person can lie, be bribed, put in jail, or even die… and your program on Ethereum gets wrong (or no) data. Tellor solves this problem.

Think if instead of having just one person type data into the computer, you have a whole bunch of people competing to type that data in. This is Tellor. We have every person who wants to compete place 1000 tokens in a jar that they lose if they lie, and then they use Proof-of-Work to pick who the person is that gets to enter the data (just like Bitcoin).

So now if your program wants to know the score of the Eagles game, you can just ask the Tellor network, and our system will compete to give it to you.

Q: What importance does off-chain data access have on the industry?

A: So there are two pieces to dissect here, the first is off-chain data and the second is in a way that’s decentralized.

For off-chain data, it’s just a necessity if we’re going to build interesting things. If you want a token representing Apple stock on Ethereum, you’re going to need to know the price of AAPL. If you want to write an insurance contract that pays out if it rains on a certain day, you’re going to need to the weather. If you want to bet on a horse race, you need to know who won. All of these financial contracts require off-chain data to settle to and we’re enabling a world where Ethereum can partake in all of the wonders they bring.

I’m sure most people here have heard of ‘DeFi’ or decentralized finance. It’s things like stablecoins, margin trading, and even derivatives (contracts that let you bet on the price of things) all without middlemen (so just contracts on Ethereum).

The companies all claim that their systems are completely trustless and can’t be shut down or tampered with, but at the current moment (barring a few exceptions) they’re all liars. If I hold a stablecoin backed by ETH that is always worth 1 dollar, is it decentralized at all if you get to decide what the price of ETH/USD is?

The answer is no since you could just say that ETH is worth $1 million and now my stable coin is essentially worthless.

Q: What exciting announcements does Tellor have coming up, or have you recently announced?

A: We just launched on Mainnet. That’s pretty big for us since it culminates a year of pretty heavy research and development. Since we started with a zero supply and mined it from there, it started out pretty slow, but we’re just at the point where we’re starting to distribute tokens to the community and sell some to investors. We’re also partnering some big projects in the space to bring truly decentralized financial contracts to Ethereum.

Q: What impact does an event like CoInvention have on the industry?

A: CoInvention and other events that bring together various parts of the industry are crucial to its success. We all get very siloed in our Discords, Telegrams, and Twitter Feeds, so having the opportunity to actually interact with other projects and be honest about our progress is vital.

It’s also great to meet the faces behind the companies and realize how early all of this still is. When you come to the events you realize its still that wild west of hustlers, genius developers, and revolutionaries out here just trying to have a fun time while changing the world.

Co.Invent is the official publication of CoInvention, Philadelphia’s leading blockchain conference. The two-day event will take place starting with a hackathon on September 20 followed by the actual conference and an industry mixer on September 21 at the Lowe’s Hotel in Center City.

👉 Buy your tickets here.