FAQ
Commonly asked questions about the Universal Protocol, what problem it solves, and how to use it.
Q: What is Universal Protocol? Universal Protocol is a wrapped asset protocol designed to enable trading any token on any chain.
Q: Who should use Universal Protocol? Universal is most useful for onchain traders and investors that want to get exposure to their favorite tokens from their preferred chain. For example, if you have assets on Base and want to get exposure to Solana, you can use Universal to swap for uSOL and keep all your assets within Base, all without ever touching a cross-chain bridge or centralized exchange. Developers that want to support a wider array of assets within their dApps will also find Universal useful for enabling more use cases for users. For example, if you’re a DEX on Base, you can make it possible for your users to trade assets otherwise unavailable to trade on Base- think: SOL, DOGE, etc.
Q: Why is Universal needed? Cryptoassets without smart contract functionality can’t be made available to trade in spot markets in DeFi without a Universal-like system. These include some of the most popular and liquid assets in crypto- BTC, DOGE, etc. We believe all of these assets should have the benefits of the transparency and composability of DeFi, and the DeFi experience should have the user experience of the most easy to use apps in CeFi. Beyond bringing non-smart contract assets onchain, Universal enables improved liquidity conditions and price execution by bringing off-chain order book depth on-chain. Our goal is for you to get the best price for all your favorite assets on any chain you want, all without ever having to touch a bridge or centralized exchange. Q: Is Universal a bridge like LayerZero? Not quite. Universal relies on an intent-based mint and burn system, whereas LayerZero is a lock and mint bridge. Lock and mint bridges require users to “lock” their tokens on Chain 1 in order to mint the bridged token to Chain 2. This means pools are restricted to chains that can support smart contracts, and capital efficiency is more limited as pools must exist on each individual chain. With Universal, uAssets are burnt on Chain 1 and minted to Chain 2, removing the need for tokens to be locked. Universal can also support non-smart contract tokens, as they are wrapped to the chain of your choice when minted in Universal. The tradeoff here is that Universal assets rely on a trust assumption with the custodian, with uAsset architecture more like WBTC or USDC than DAI or LayerZero’s OFTs. Q: What is a “wrapped asset”? A wrapped asset maintains custody of the underlying token with an offchain custodian and allows the creation and redemption of 1:1 backed “wrapped” tokens onchain. Wrapped assets can be minted when an actor brings the full underlying collateral to the custodian to mint the token. Wrapped assets can be redeemed for that underlying collateral by burning the token. Universal’s wrapped assets are maintained with Coinbase Custody, and open source Universal Protocol smart contracts power issuance and redemption of uAssets across multiple blockchains.
Q: Why is this better than wrapped BTC (WBTC), for example? In short, Universal BTC should be available on more chains. Universal assets are designed to support improved liquidity conditions because our intent based design means that when there’s demand for a wrapped token on a particular chain, an actor can fulfill that demand by minting the uAsset to that chain instead of that order routing to an AMM that may or may not have enough liquidity depth to fill the order at best execution. Previously, token issuers and ecosystems like WBTC had to maintain liquidity pools on each individual chain to support depth, so when new chains sprouted up it became a big cost burden to maintain liquidity there. Beyond that, WBTC is natively an EVM asset, meaning it can’t be made available on other L1 chains in spot markets. As a result, you can’t trade WBTC on many of today’s most popular chains.
Q: Where are the reserves stored? All uAsset reserves are maintained with Coinbase Custody.
Q: Which chains do you plan on supporting? Universal currently supports Base, with support for Arbitrum, Polygon, Avalanche, Solana and Monad coming soon. Universal intends to support as many chains as there’s demand to trade on. Q: What are “Merchants”? Merchants are actors in the Universal ecosystem that are permissioned to mint or burn Universal assets. They support the creation and redemption of uAssets and fulfill intents when a user requests a uAsset on their desired chain.
Technical Questions
Q: What is Just in Time (JIT) Liquidity? Typically, DeFi users tap liquidity that is sitting dormant in AMM LP pools- an LP adds pair liquidity, a user hits that pool for their desired asset, and the pool rebalances, all entirely passively. This is an incredible innovation but it can also be incredibly capital intensive (and time intensive for LPs to manage profitably). Universal's near instant issuance and redemption system allows for seamless integration with intent based exchange. When a user wants to access an asset, a signed intent (a bit like a limit order) is made and a fulfiller (a market maker) can fill that order by either using existing inventory or minting the uAsset in order to fill the order at the agreed upon price.
This means liquidity no longer needs to be sitting dormant, and can be brought to the protocol on an as needed basis.
Q: Are Universal Assets composable? Yes, uAssets are like any other ERC-20/SPL/smart contract token and they are designed to offer the composability of DeFi.
Q: How do Merchants fulfill quotes? The exchanges can be any kind, including intent-based ones like uniswap X/cowswap, which will allow the merchant to provide JIT liquidity by minting/redeeming on the fly to fulfill orders.
Q: Do uAssets require secondary liquidity? For UniV3 or CEX’s, secondary liquidity is required, but the inventory requirement is smaller since Merchants can acquire/offload inventory in seconds.
Have other questions? See the full whitepaper or reach out here.
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