The tale took place in a kingdom where a miller's daughter became queen solely due to the illusion that she was able to spin straw into gold.

This tale is assumed to be applicable to the Shrek 4 Rumpelstiltskin since, in the Shrek universe, fairytales and nursery rhymes typically keep the fundamentals to make an accurate representation of the character.

It is safe to assume that Rumpelstiltskin follows his own backstory to some extent, since other characters in the Shrek universe does so as well. Hypothetically, if we were to use the (possibly outdated) lore of Rumpelstiltskin in Shrek 3, we can assume that was or is deeply affected by the fact he failed to retrieve the firstborn that was promised to him in his original tale, as seem when mentioned by prince charming. Although not shown in Shrek 4, Rumpelstiltskin in Shrek 3 had a binky tattoo on the back of his left forearm. Through this, we can assume that King Midas, the name of Rumpelstiltskin's king (Shrek 4), does not know that Rumpelstiltskin had created the illusion that the queen could spin straw into gold. In fact, King Midas ‘highly recommended’ Rumpelstiltskin to the King and Queen of Far Far Away, which led to their decision to make a deal with him in the first place. Another possibility is that King Midas simply was not aware that Rumpelstiltskin and the queen had made a deal, since the queen would likely face death or some form of punishment by the king if Rumpelstiltskin's lore is accurate to his fairytale; since the queen assumed the throne under the false impression she could spin straw into gold.

However, in Shrek 3, Prince Charming knew about the situation with a firstborn, so it would make sense that others would, as well. There are a few possibilities; King Midas is one of the few people who does not know about the deal to retrieve the queen’s firstborn, Rumpelstiltskin gained the King’s favor by honoring his word and possibly compensates for any failures through gold or possibly even leaving the kingdom (the latter is unlikely, since the king may not 'highly recommend' an outcast), or the lore from Shrek 3 is not applicable and this information is all outdated.

In fact, Donkey, in the alternate universe created through a deal with the royals of Far Far Away, had revealed that Rumpelstiltskin's business declined after everyone learned his name, presumably after the deal in his fairytale that took place in his previous kingdom. In addition, the king of Far Far Away, King Harold, is based off of the original fairytale of Princess and the Frog (not the Disney film). It was revealed in Shrek 2 that King Harold had made a deal with the Fairy Godmother to make his queen, Queen Lillian, fall in love with him through the use of a love potion or spell. Through this, he was transformed from a frog into a human. This is further proved when he turns into a frog at the end of Shrek 2 when hit by the Fairy Godmother's magic - he had turned back into his original form.

In the beginning of Shrek 2, it is also revealed that King Harold had made another deal with the Godmother to save his daughter, Fiona, from a curse that caused her to be locked away in a tower. Prince Charming was to be the one to rescue Fiona, but was unsuccessful when Shrek had rescued Fiona before him. Queen Lillian is shown to not be aware of any contracts that King Harold has made with the Fairy Godmother, even in Shrek 4, where she remains persistent to make a deal with Rumpelstiltskin since she is under the guise that her daughter has no other plan for rescue. King Harold is anxious and unsure of the deal making but refrains from revealing that he had made a deal with the Fairy Godmother, illustrating his hesitance to reveal that he was in contact with her in case Lillian discovered his affiliation with her.

Harold is also seen looking to Lillian for approval during his interactions with Rumpelstiltskin, seemingly unable to make a single decision by himself. He values his marriage with Lillian more than he values the safety of his kingdom, since he seeks marital 'stability' by turning over his kingdom to a known dealmaker and villain.

In contrast, Lillian's perspective of this is that of valuing her daughter's safety over the kingdom's rather than her marriage, since she is unaware of Harold's contact with the Fairy Godmother and the fact her marriage was created with the help of a fairy's magic.

Rumpelstiltskin can not be a dwarf, though, in the Shrek universe. Or, at least, he can not just be a dwarf. Dwarves in the Shrek universe mainly consist of the seven dwarves from the Snow White fairytale. Throughout the movies, dwarves have no magical powers or unique physical attributes - they are merely human. Rumpelstiltskin, however, has a different ear and eye shape, different body structure, and a unique hair and eye color that is not seen in another dwarf and nearly all characters in the franchise. A character that is so openly unique from a race that he is blindly assumed to be a part of is likely incorrect. He is more than just a dwarf, if he even is one at all.

Fae usually have brighter eyes and hair, and are known for manipulating words magic, including planes of existence. The common trope of giving a fae your name is shown to be taken literally.

This is extremely similar to what Rumpelstiltskin does; he only uses literal meanings and communication when talking and negotiating deals, and if never shown to have lied.

Magic examples:

- in the beginning of Shrek 4, he breaks a plate in anger when cutting a cooked rat . It takes him a couple of seconds to compose himself, but, within that time of physical stillness, he managed to fully garnished two (unbroken) plates of cut rat.

- he uses a magical gold ink for his contracts, which is the same material seen when Shrek and the Royalty of Far Far Away disappeared. Although not shown in Shrek 4, Rumpelstiltskin turned straw into gold.

Similarities:

- Fae are typically 3-4 feet tall for human-sized fae in some fairytale media. Rumpelstiltskin is approximately 4'7".

- Faes typically flaunt jewelry or fancy clothing. Rumpelstiltskin is seen doing so in Shrek 4.

Lastly, the Fairy Godmother is a type of Fae, and has a unique hair color as compared to other characters in the Shrek movies.

As seen in Shrek 4, time had 'paused' when Shrek signed the contract, and he even went further back in time (at least 30 minutes before the signing of the contract) since he had come to when still in his kids' first birthday party. This undeniably demonstrates that Rumpelstiltskin has the ability to 1) manipulate time in case he fails in a contract so he has sufficient time to redeem/save himself and 2) fabricate alternate universes that seemingly only affects the parties who signed the contract. In the other cases of signing deals that did not make an alternate universe, this still applies.

To prove this point, Rumpelstiltskin would have manipulated his contracts to abuse said power and receive any other condition(s) he so desired. However, Shrek was seen as the only person, other than Rumpelstiltskin himself, to remember the contract and its contents, supporting the idea that a magical contract only affects the parties involved in the signing.

An additional demonstration of his magic, in the alternate universe that had fully replicated the original one, King Harold and Queen Lillian signed a contract that made them disappear into a gold mist. It is not confirmed that Rumpelstiltskin was immediately made king, since the words used in the discussion of the contract was 'you sign the kingdom of Far Far Away over to me.' Rumpelstiltskin follows the literal meaning of phrases and words, so he 'owns' the kingdom in a sense. A ruler could be overthrown, but since he owns the territory, one can not legally overturn the contract put in place, especially with the use of magic. However, it is shown in the alternate universe he created that it is possible to overthrow him, since the ogre resistance did so in the conclusion of the movie. Therefore, either the people of Far Far Away were too scared to do anything against Rumpelstiltskin as a single person, which I doubt, or he had assistance in securing his spot as the ruler of Far Far Away. His witch army is likely to be the party responsible for his success, as they are his only known affiliates in Shrek 4. It is not confirmed what had kept the witches in line, since they outnumbered him, hundreds to one - there may have been a contract involved in their loyalty to Rumpelstiltskin.

Evidence 1 - Grimm's tale (the miller's daughter):

- The miller's daughter had to turn one room of straw into gold within a day. She will die if she doesn't. The price: her necklace.

- The miller's daughter has a bigger room of straw to turn into gold within a lesser time frame than before. The price: her ring. 

- The miller's daughter has an even bigger room of straw to turn into gold. If she succeeds, she becomes queen. The price: her firstborn child.

It is important to note that Rumpelstiltskin's wording was literal and he said "Then you must promise me the first child you have after you are queen." He didn't necessarily manipulate her in the fairytale. The size of her payment increased with the personal gain of the deal, the child being the price to pay for becoming a queen. 

Evidence 2 - King Harold and Queen Lillian (Shrek 4 alt. universe):

- The king and queen wanted give their entire kingdom to a well-known 'evil' and 'deceitful' person in turn for their daughter's freedom - their decision was decided on another King's word. 'ALL of their problems would disappear.' The price: the king and queen disappeared into a gold mist.

Evidence 3 - Shrek being an 'ogre for a day':

- Shrek was tired of not being a 'true ogre' and wanted a break from his domestic life.

- He wanted one day to himself without the worries of his family. In fact, Shrek told his wife, Fiona, that he wished he never saved her from the dragons keep, implying he wished they never met. He had insisted he was not in the wrong and continued to do so until the signing of the contract with Rumpelstiltskin. To get his wish, Shrek gave up one of the days from his childhood, which was clarified by Rumpelstiltskin that the day would not be recoverable if the deal is not broken. The price: disappearing into a gold mist from losing one day of his childhood - the day of his birth.

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1) The price of a contract varies on the person's greed or (initial) personal benefit.

- Personal benefit: The miller's daughter had to pay a larger price each time the stakes for her increased, eventually trading a first born daughter for becoming the queen of a kingdom.

- Greed + personal benefit: Harold and Lillian wanted to give up their kingdom in order to break Fiona's curse. However, Rumpelstiltskin never confirmed that Fiona would be rid of her curse as an effect of the contract, only stating that their problems would disappear (which did, indeed, happen).

- Greed: Shrek wanted to be rid of the life he had worked hard to achieve for a short period of time. He had a wife and three kids, but decided to walk out on his family the day of his triplets' first birthday. He had stuck with his decision up until he realized that he did not still have his family in the alternate universe that was created. In fact, he was under the impression that he still had his family, but prioritized his isolation and feeling 'ogre-like' again over the family he thought was waiting for him at home.

2) Rumpelstiltskin clarifies what happens if one signs his contract in verbal discussion.

- He directly stated what would be taken from the miller's daughter, and even gave her a second chance to not lose her child at the end of his deal. He stuck to his word despite the outcome not being in his favor.

- Rumpelstiltskin said 'all your problems will disappear' and did so in a way that ensured all problems of Harold's and Lillian's would be gone (death).

- When talking to Shrek, he said that he will take a day from his childhood, and, in response, Shrek said 'take any - take them all for all I care.' Rumpelstiltskin took the day he was born, rendering him physically nonexistent after the 24 hours had ended.